It is a hearsay that a divorce can directly sabotage your credit. Technically, getting divorced has no direct impact on your credit. However, life can be hard, and there are many indirect ways that a divorce could result in negative items on your credit reports and harm your credit score.
A loss of communication, or spiteful spouse, could influence your credit as the bills go unpaid. Late payments can damage your scores, and the impact may accelerate the longer a bill goes unpaid. After some time, the account may be charged off and sent to collections — additional negative marks on your credit reports that can hurt your scores.
An important thing to bear in mind is that a divorce decree won’t override your responsibility to a lender. Even if a court orders the other person to pay the bills for an account, if the account is also in your name late or non-payments could still affect your credit.
A mortgage can be the most difficult credit account to sort out if choose not to sell the home. The individual who’s going to take over the house may need to refinance the mortgage in his or her name. However, they may have trouble qualifying. If you don’t refinance, you’ll both legally be responsible for the mortgage payments and the person who moves out may have trouble qualifying for a second mortgage to buy a new home.
During the divorce, a vindictive spouse who is an authorized user on your account, and can, therefore, make purchases but isn’t responsible for the payments, could also leave you with more debt than you can afford to repay. Even when that’s not the situation, you may find yourself falling behind if your former spouse paid for most of the household expenses and now you must cover bills on your own.
Alterations to Your Available Credit and Debts
A lot of changes might take place if your financial life was intertwined with your spouse’s. You may have had joint banks accounts, credit cards, loans, or a house together. Even if you pay all your bills on time, you may come across your credit score starting to change as you separate your finances.
Your score could rise or fall depending on the circumstances because a large part of your credit score can rely on the amount of revolving credit (e.g. credit cards) you currently use, as well as the remaining balance on installment loans.
If you close all of your joint credit card accounts and have less available credit, that proportional amount of credit you’re using (your “utilization rate”) may rise and your score could tumble down. Both of your utilization rates could also increase if either one of you start to build up expenses on joint accounts.
But probably you had joint accounts with a balance, and your former spouse has decided to take over the balance by transferring it to his or her personal account. Or, you may have both decided that dipping into savings and paying off joint accounts is the easiest way to settle the accounts. In either case, your utilization rate may drop, which could help your score.
Start Protecting Your Credit and Your Finances
Your credit may not be your priority when you’re in the midst of a divorce. But you may still want to address issues with utmost importance, and potentially hire a divorce attorney who could help you avoid pitfalls while putting your finances in place. Doing so could also help protect your money, avoid late fees, and save money on interest charges. Moreover, having healthy credit can make it easier to restart your life, as your credit reports can impact your ability to rent or buy a home, get a job, and qualify for credit cards or loans.
If you have bad credit because of a divorce and don’t know where to start, consider applying for a car loan online if you haven’t already. An existing vehicle loan that you and your spouse signed for together can take a hit on your credit at the time of divorce. For this reason, you should begin your personal credit building journey in full swing. Canada Auto Experts specializes in bad credit car loans, in other words, rebuilding credit for several Canadians with a car loan at affordable interest rates, regardless of one’s credit. Please call 1-855-550-5565 to speak to a credit specialist today.