Follow These Strategies to Repair Your Credit After Divorce
Divorce is as much a financial experience as it is an emotional one. But along with the division of assets comes a new chapter — a chance to repair your credit.
While divorce doesn’t cause poor credit in itself, child support payments and being responsible for 100% of your bills may cause financial strain. Some grapple with a missed payment or two, along with high legal fees they must pay off. And their credit takes a hit.
Others face foreclosure and bankruptcy, and their credit scores plummet. But you can repair the damage. Consider these strategies to rebuild your credit after divorce:
Separate your joint accounts.
If a judge determines your spouse is responsible for a joint debt, creditors will still hold you equally liable for the amount owed on the account. As a joint account holder, you promised to take responsibility for the debt when you signed on the dotted line — and creditors will hold you to it.
What you can do here is talk to your former spouse, and come up with a plan to separate your joint accounts. Go over your debts, and call your creditors with a request to transfer each account to the person who has agreed to take on the debt. Note that you may have to continue making payments until the creditor releases you from the debt.
The same applies to your mortgage. Consider refinancing your home so that the mortgage is in only one of your names, and until then, be sure to make each payment on time. Alternatively, you could sell your property and split the proceeds between you.
Pay your bills on time.
A single missed payment will stay on your credit report for up to seven years. No matter how much your divorce is affecting you, try to stay on top of your bills. At the very least, make the minimum payment by the due date each month to avoid further compromising your credit.
If you do miss a payment, learn from your mistake and do not let it happen again. According to Experian, one of the three major credit bureaus, your financial behavior in the last 18 to 24 months is especially important. Do not listen to those who tell you to stop paying your bills in order to hurt your ex-spouse — if you don’t pay your bills, your credit score will go down.
Build your credit independently.
After a divorce, building credit on your own is one of the most effective ways to repair your FICO score. Consider getting a new credit card with a small limit — perhaps just enough to cover gas and groceries — and use it consistently. The important thing is that you don’t spend more than you can afford. Pay your credit card bill on time each month, in full if you can, and work to strengthen your credit history.
If you’re nervous about your credit, you might ask a relative or trusted friend to cosign your application. Keep in mind, however, that your transactions will affect the cosigner’s credit as well. Avoid putting your cosigner in an uncomfortable position, and do what you can to make timely payments. Then, when you feel as though you’re back on your feet, apply for a new card in just your name, and watch your credit grow.
Get started now on a better year of credit.