Building your credit after divorce
If you and your former spouse shared expenses and accounts, now is the time to separate them and shore up your credit score
Credit is important for everyone, but even more so for a newly single person. Solid credit can help you get a car or home loan, and excellent credit may mean you qualify for lower interest rates. Insurance companies and landlords may also use your credit score to calculate premiums or determine the size of a security deposit. If you’re recently divorced or going through a divorce, consider these steps to build or maintain your credit as you establish financial independence.
Pay all bills on time
You get a great credit score by paying every bill by its due date and keeping credit card balances low. But finances can be tight after a divorce. Try to stay on top of your monthly payments as you look to lower your costs. For example, you could consider refinancing a car loan to lower your monthly payments or switching to a high-deductible health insurance plan to lower your monthly premiums. If you’re really struggling to stay on top of bills, consider contacting a consumer credit counseling service for help.
Check your credit reports
One of the best ways to see where you stand financially after a divorce is to evaluate your credit reports. You can get a free credit report from each of the three credit reporting agencies (Experian, TransUnion and Equifax) once every 12 months at AnnualCreditReport.com. The reports show any loans or credit card debt for which you are personally responsible. Ensure that all the information on those reports is accurate and up to date. If you spot any mistakes, notify the bureaus by mail or through their online dispute forms. Also look for any notices of late payments or outstanding balances, which may be hurting your credit. If you have those on your reports, start taking steps to improve your credit score, such as paying bills on time and lowering your balances on loans and credit cards.
Close or remove your name from joint accounts
You and your ex-spouse are responsible for separating your shared accounts in accordance with the divorce decree. It’s very important to do this. If you don’t tell a bank or creditor to take you off a joint account and your ex-spouse acts irresponsibly, you could have to pay for his or her overdraft or late payment fees—as well as take care of any joint debt.
As soon as your attorney gives you the all clear, close any shared bank and utility accounts and establish new ones in your name. Since closing a credit card can hurt your credit score, it might be better to keep those accounts open and ask the company to remove you or your ex-spouse as an authorized user. Some companies may let you convert a joint account into an individual one instead of closing the account completely. Bank of America customers can make an appointment with a specialist at a local financial center to discuss the options.
If you’re unable to close a joint account immediately, consider legal measures that can protect your funds. For example, an automatic temporary restraining order can prohibit either spouse from independently making changes to financial accounts for a set period.
Continue to pay shared bills
If your ex-spouse has been responsible for paying bills, don’t assume they will all be paid on time. Take control of payments that could affect your credit. Late payments—even on purchases your ex-spouse has made—can still hurt your credit until your name is officially removed from the account. Keep track of any purchases you’ve paid down in your ex-spouse’s name, and work with your lawyer to settle those debts once the accounts have been separated.
Apply for a new credit card, if you need one
If all your financial accounts were in your ex-spouse’s name, you may have a limited credit history that could make it challenging for you to be approved for loans or other credit. The best way to build up your credit is to make charges on a new credit card and pay the bill by the due date each month.
If you don’t qualify, consider a secured credit card
A secured credit card requires a cash deposit that serves as your credit line. Secured cards work just like traditional ones, but if you don’t pay your bills, the issuer can keep a portion of your deposit to repay what you owe. Paying off your secured card’s debt on time can help build your credit, making it more likely you’ll be approved for an unsecured card in the future.
Divorce can be a major life change, and it’s important to deal with its financial impacts. By proactively managing your accounts and establishing good credit, you can put yourself on the path to financial independence.