While many divorcing consumers understand credit, some still rely on spouses who "took care of all that stuff" and may lack experience managing credit and bill payments. In this blog, we discuss joint debt and consumer credit during a divorce.
Understanding Your Credit Score: The First Step to Managing and Improving It
Payment history is the most influential component of your credit score, followed closely by the amounts owed. Additionally, the length of time you’ve utilized credit, the number of new accounts or inquiries, and the various types of credit accounts you hold will also impact your score to a lesser degree.
The overall importance of these factors can be influenced by the entirety of the information in your consumer credit report. Patterns, occurrences, or items may be measured differently depending on other factors. The complexity of scoring formulas makes them difficult to assess.
Managing Joint Debt and Consumer Credit During a Divorce
Effectively managing your credit involves several key practices:
- Ensure bills are always paid on time by following a reliable system.
- Avoid late payments and excessive credit use by maintaining a cash cushion for unexpected expenses or repairs. It’s better to have a high credit limit with a low balance than to max out your cards.
- Never close old accounts, as their age can benefit your score. If you shop for credit, do so within a short period to avoid multiple inquiries affecting your score.
- Establish credit experience to build a credit score, but use credit wisely within your means.
- Avoid opening new accounts solely for discounts, as this can cost you more in higher interest rates over time.
- Too many accounts mean too many payments, increasing the risk of missing one.
The Importance of Joint Debt Management During Divorce
It is advantageous for both spouses to work together in managing and maintaining existing joint debt and consumer credit. Maintaining strong credit through a divorce is crucial, as derogatory credit can impact mortgage financing options, insurance premiums, employment opportunities, and more.
Special Note to Women Regarding Consumer Credit
A good credit history is essential for obtaining credit. Many married, separated, divorced, and widowed women may face challenges due to losing credit histories when changing names or having accounts reported in the husband’s name only.
If you’re married, separated, divorced, or widowed, contact your local credit reporting companies to ensure all relevant bill payment information is under your own name. National credit reporting companies sell this information to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.
Why Contact a CDLP® for Joint Debt and Consumer Credit Issues
Joint debt and consumer credit scores significantly impact your ability to buy a home during or after the divorce process. Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement agreement can help divorcing homeowners set the stage for a successful refinance of the marital home.
Working with an experienced mortgage professional who specializes in assisting divorcing clients is essential. A Certified Divorce Lending Professional (CDLP®) can answer questions and provide excellent advice.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
Copyright 2021—All Rights Divorce Lending Association
