How to Protect Your Credit before a Divorce - dummies

How to Protect Your Credit before a Divorce

By Steve Bucci

Unfortunately, you may be faced with the prospect of a divorce, which can impact your credit and finances. If your financial life was challenging as a married couple sharing a common future, in divorce it may become even more so.

To add to the stress, you may find that some of your expenses increase as you separate into two households; for example, you may have two mortgage or rent payments every month. The financial fallout from a divorce can also include difficulties in opening new accounts and obtaining new loans in your own name.

Take precautions when a split-up looms

If you suspect that a divorce may be in your future, consider the following. Even if things end up working out, these strategies are still worth considering.

  • Keep good credit in your own name. A couple different types of accounts — such as revolving (credit card), installment (car loan), and retail (department store card) — should be sufficient.

  • Build your own credit while you’re married. Remember that your credit score is made up mostly of the amount you owe and whether you pay on time.

  • Open your own bank account with checking and savings features. Overdraft protection can be a plus, especially if it’s free.

  • Keep track of your joint credit accounts by checking your credit reports frequently or by enrolling in a credit monitoring service. Doing so may provide you with an early warning that your partner is having some issues. At a minimum, check one of your three credit reports every four months.

Prepare your credit before heading to court

If the possibility of divorce becomes a reality, you want to ratchet up your credit protection action. Quickly separating your financial selves to the best of your abilities is important. Here’s how:

  • Inform your spouse that you’re closing joint accounts, and then send a letter to each joint creditor asking that the account be closed to any new activity. Closing accounts protects you. Telling your spouse in advance allows him or her to make other plans and is the decent thing to do. Just don’t wait too long to send the letters.

  • Attempt to agree on how joint or community property accounts will be paid and who’ll be responsible for making the payments. If you can’t reach an agreement, make the minimum payments yourself so that your credit doesn’t deteriorate. You can always recoup the money in a reconciliation or divorce settlement; just keep track of what you pay.

  • Transfer joint balances to individual accounts if possible. Also, include a division of joint debts as a stipulation in your divorce decree, with specific amounts assigned to each person.

  • Build individual credit as soon as possible. Start small and build up gradually if you have to. If your credit is damaged already, start with a credit card that has a small credit limit — perhaps a card from a local department store, gas station, or credit union. After paying your bills on time for six months or so, apply for another card and continue paying bills consistently.

  • Check your credit more frequently than normal. Consider subscribing to a credit monitoring service or freezing your credit to prevent the addition of any new accounts.

Even if your prospective ex is uncooperative, keep paying at least the minimums on all joint bills on time. Don’t listen to uninformed but well-meaning friends and relatives who may tell you to stop making payments to spite your ex. Missed payments generally stay on your credit reports for seven years, making it hard to obtain new credit, employment, insurance, and maybe even a new spouse or partner.

If you change your name, be sure to write to all your creditors and the three major credit bureaus to let them know. Doing so helps keep errors based on name mix-ups from affecting your credit history.