Divorce itself is a matter of emotional stress and agony, that even without the pain of what it could do to your credit. Many a times, unpaid bills, financial liabilities or credits becomes a point of contention that it leaves much bad taste even before the couple officially separate. And a damaged credit record after divorce could haunt you all through the years ahead. But that must not be an issue of despair any more. If left as such, it may be, but in fact re-establishing one’s damaged credit is possible and is a necessity for financial transactions in either of the spouse’s future life.
Re-establishing your credit after a divorce can be a bit lengthy process, but is worthwhile an effort to take up. As a first step, one should see where actually he/she is standing in terms of credit ratings. It could be deduced from a copy of your credit report, which can be obtained from any of the national credit bureaus for a nominal fee (around $8). Try any of these sites for a credit request – www.transunion.com, www.experian.com, or www.euqifax.com.
Now compare the divorce decree with the credit report to find out the accounts for which you are responsible. Collections, liens and late payments should be the ones you will be looking in the first place in order to clean up as the top priority. Check if you are listed on the account. If it is a personal account, then it is your responsibility to make the payment. But joint accounts can lead to tricky situations sometimes. Hence, in such circumstances, it would be better if you could obtain a credit divorce. Mind you, a credit divorce is necessary to build your credit record after an official separation.
As an open joint account in wrong hands means inviting trouble, it is only prudent to close it at the earliest. And to do that, one does not need the consent of his/her spouse at all. What you need to do is to give a letter to your creditor specifying your account number, SSN, address, name along with a request to close the account on your behalf. Remember, closing a joint account is meant to prevent any more debts from being incurred and it does not relieve one from the existing financial liabilities. Also, one will not be allowed to close a joint account for a loan without repaying the debt or refinancing in your name.
If you are closing a credit card, check the fine print for a credit agreement allowing the creditor to raise the interest if the credit is being closed earlier than it getting paid off. But always take care to avoid credit cards with annual fees.
A useful tip: In divorce circumstances, it is intelligent to negotiate a partial payment with a creditor in order to encompass a debt in full. It may need some fast talking, but, in fact, most companies welcome a deal this way.
The tangles of law and finance can sometimes lie in contrasting angles. Even if the divorce decree frees you off any financial responsibility in terms of a mortgage, it doesn’t necessarily mean that you are actually free from the responsibility, which further implies that your credit is still in the hook. The only way out is to get the ex-spouse to refinance the loan in his/her name only.
That is, if your name is still on the loan and according to an agreement, your ex-spouse is making the payments, make sure that you are keeping track of the payments made in each month. You can easily do this by striking an agreement with the lender to make a courtesy call if any default in payment is occurred by the delinquent date.
Once this much done, as the next step, you can concentrate on building a credit of your own. Begin with a secured credit card. That may require you to pay several hundred dollars initially in advance and the bills charged later are deducted from this amount. And each time you swipe the card, take care to repay the account to maintain the limit paid. Getting a family member (whom you cannot divorce) to co-sign will help in getting the credit card in your name. But to get somebody to co-sign is another issue altogether.
While you are rebuilding your credit, ideally you should be carrying only two credit cards – one with a smaller balance (say $500) and a bigger limit card, for emergencies.
Remember, re-establishing the credit after a divorce is a lengthy and exhaustive process. But it is worth the time and effort spent as a good credit record means the best interest rates and the lowest down payments on a loan and it offers you the financial cushion you may need at the time of emergencies. If you are single and have kids, there won’t be any dearth for emergencies.