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building credit aftr divorce

Your Financial Life After a Divorce

Getting divorced isn’t just an emotional situation, it can be an expensive one as well. Even if you don’t have costly legal proceedings to deal with, a divorce can still have a big financial impact. Going from living in a shared household to living on your own (and all of the costs that come with that) can be a drastic change and a big hit to your bank account. There can be other financial impacts as well.

While your martial status isn’t mentioned on your credit report, and getting divorced doesn’t directly affect your credit score, there can be an indirect impact on your credit, depending on how your financial life was set up prior to the divorce.

Shared Finances are a Shared Responsibility

Each person has their own credit report. Just because you are married, it doesn’t mean that your credit report merges with your spouse. The same is true if you get divorced. However, any shared financial commitments or assets are the responsibility of both people in a relationship, even after the relationship ends.

For example, if you have a joint bank account, credit card, or loan with your spouse/former spouse, you’ll need to make sure that this situation is resolved. For a joint account, you may wish to remove one person’s name from the account or close the account entirely. However, this can sometimes be easier said than done, especially if the two of you are in different financial situations or if one (or both) of you is not eager to cooperate.

If you have a joint credit card, both of you are responsible for the debt on this account. If one spouse doesn’t make the payments, the creditor will consider the other person liable as well, even if the couple has divorced. To avoid this, you’ll need to make sure that one person’s name is removed from the account, and this can be difficult if there is an existing balance. The most straightforward thing to do at this point is for each person to pay off the remaining balance, or for both of you to take out new loans to pay off what is owed. Then the joint account can be closed and the two of you will have your own individual debts to be responsible for.

This saves your credit score from potentially being damaged if your former spouse does not make the payments on your joint debt. However, this is only possible if both of you are able to get new loans. If one person cannot due so, the situation becomes more difficult. Speaking with your divorce attorney can help you handle such situations.

Closing Accounts and Your Credit Score

If you and your spouse get divorced and you close your joint accounts, this can have a negative affect on your credit score, since you will have less credit available. However, if you use credit wisely after your divorce, you can rebuild your credit over time.

Your credit score can also be affected by a divorce if you did not have a joint credit card, but if you instead were set up with a primary account holder and a secondary account holder. If one person in the relationship had a credit card and they added their spouse as a secondary user when they got married, the activities of either spouse did not help build the credit of the secondary user. If this spouse is then removed from the account after a divorce, they could have difficulty getting loans in the future since they did not build up their own credit during their time as a secondary card holder.

How to Rebuild Credit

There is no instant way to rebuild your credit score. The best way to improve your credit report is to show that you can borrow a reasonable amount of money and repay it on time. If you weren’t the primary money manager in the relationship, you may find this tough to do. Managing money wisely can also be more difficult after a divorce because you won’t be able to split costs like rent or utilities with another person.

Therefore, rebuilding your credit following a divorce takes organization and dedication. Make a budget and stick to it. Make sure you pay your bills on time and stay on top of your debts.

If you have bad credit or no credit and you’re not able to get a traditional credit card because of this, consider a secured credit card. With these cards, you put down a deposit and are then given a card that you can use in the same way you would typically use a credit card. As you make purchases, you’ll receive a monthly bill that you will be responsible for paying each month. Making payments on time will help you improve your credit score. Keep in mind that a secured credit card is different from a prepaid credit card, which is more like a gift card. Prepaid cards do not help you build credit.