Your credit is your lifeline. It affects everything from the cost of borrowing to whether you can get a new apartment. Yet many people experience a drop in their credit ratings after a divorce. Is there a penalty on credit scores for getting a divorce?
No, but there are events that may take place during your divorce that could drive down your credit score. You should keep this in mind as you proceed.
New debt from an angry or careless spouse
If you’re like most married couples, you have some shared checking, savings and credit accounts. These are all fully available to both you and your spouse. In Arizona, an automatic court order called a preliminary injunction goes into place when you file for divorce that orders both spouses to maintain the financial status quo. That means no one should be spending down the savings or taking out any new debts.
Unfortunately, an angry or careless spouse may do so anyway. This could increase your credit utilization rate, which could hurt your credit score. Even if you can work the problem out during the divorce, your credit could still take the hit.
One thing you can do is to file for divorce immediately once you’ve made your decision. This puts that preliminary injunction into place right away. Then, discuss your concerns with your divorce attorney. It may be a good idea to close any joint accounts and remove any signing authority, but you will need to act carefully so you don’t run afoul of the preliminary injunction yourself.
Who was supposed to make that payment?
Another problem that can occur is that you and your divorcing spouse fail to agree on who will pay what bills while the divorce is going on. Or, a vindictive spouse might choose not to pay their share of the bills despite an agreement. Failure to make payments on shared accounts could affect both of your credit scores.
One way to prevent this is to make an agreement as soon as possible and ask your lawyer to have that agreement turned into a temporary order while the divorce is in progress. You may not be able to prevent the hit to your credit score, but you can ensure that you are not legally obligated to pay bills that were assigned to your divorcing spouse.
The cost of the divorce itself
Even for people who are in a good financial position, a divorce can be costly. It tends to be more costly the less you can agree with your spouse on the issues of property, debt, parenting and support. The more you can resolve these issues outside of court, the less costly your divorce is likely to be.
Still, some people will need to put the fees for their divorces on credit cards, which can again affect your credit utilization rate.
If you are considering divorce and have concerns about the cost, talk to your divorce attorney. In addition to working toward agreement, there may be other strategies your divorce lawyer can help you with that will keep the overall cost of your divorce lower than it might otherwise be.
After the divorce, start building new credit
If your credit has taken a hit, it can take a while before it recovers. In the meantime, use good credit practices to build up your credit rating and score.
For example, challenge any errors on your credit reports. Take out new debt in manageable amounts and pay it off as scheduled. Gradually try to increase the amount of unused credit you have by asking for higher limits or by keeping your balances low.