By Steve Unger
Special to DadsDivorce.com
Maintaining a good credit rating is extremely important in today’s economy, because most people need to borrow money at some point. But credit can become an even bigger issue after a divorce.
When married couples have two incomes and significant joint assets, it’s not hard to have a good credit rating as long as they pay their bills.
But then what happens when that couple gets divorced? Suddenly, your ability to obtain credit can be dramatically impaired – or even ruined.
Most institutions are reluctant to make deals with people who have questionable credit, and not just lenders. Potential employers and insurance companies can also look at your credit history as an indicator of how responsible you are.
Get separate credit accounts.
One of the first and most important steps to take is to remove your spouse from any joint credit cards or other revolving accounts. Your spouse might be racking up a mountain of debt behind your back, and you could be liable for unpaid bills.
Unfortunately, it’s a common story in many divorces. One spouse applies for credit and gets turned down because his or her ex has mismanaged an existing joint account, which was supposedly closed. The prospective lender doesn’t know who is at fault.
By sharing the account, you inevitably share the blame – and the penalties. If your spouse doesn’t pay, the credit company can legally come after you.
Sometimes a divorce decree will specifically order one spouse to pay off his/her debt in a joint credit account, but exes don’t always follow through. That probably won’t come as a surprise to many people!
Redo the mortgage debt
If you and your spouse owned a home together, getting a divorce and moving out won’t automatically change that. Until you refinance and separate the ownership, you’re both still liable for that mortgage debt.
When you go to re-establish your individual credit after the divorce, having a big house payment on your liabilities sheet could be a red flag to a lender.
As with credit cards, the divorce settlement may stipulate which spouse will pay the monthly mortgage, but there’s always a risk of the payer falling behind, which hurts the credit ratings of both parties.
Establish your own credit as soon as possible.
After you and your spouse have closed your joint credit accounts – and settled or transferred any outstanding balances – it’s critical for you to open individual accounts in your name and establish a new credit rating.
Depending on your income and credit history, you may need to start small, such as a card with low credit limits. Manage the card carefully and always pay it promptly, and you’ll quickly start to solidify your credit rating.
Go online to view your credit report from all three major credit bureaus: Equifax, Experian, and TransUnion. The law entitles you to one free report a year from each.
In addition to seeing your own personal rating and credit history, the report will help you spot any suspicious or fraudulent use by your ex-spouse, which has been known to happen frequently in cases where joint accounts used to exist.
Partner with divorce attorneys who understand couples’ finances.
There are many vitally important financial questions to address before, during and after a divorce.
If you’re considering a divorce, work with experienced divorce lawyers for men who understand spouses’ financial obligations and will fight to protect you.
Cordell & Cordell:
Steve Unger is a freelance writer based in St. Louis, Mo.