Warning: Divorce Can Ruin Your Credit Rating
30 August 2006Everyone knows that divorce can be costly. But you may not have heard about one of the hidden risks - that a divorce could well destroy your credit rating. This article by John Ulzheimer gives us the scoop. Obviously there’s not a factor in your credit score based on how many times you’ve been divorced. But your accounts are often a joint responsibility, and both your names could be on them. That means if your ex stops paying for some reason, it hurts BOTH your credit scores:
Then it happens. Kate starts getting calls from cullection agencies trying to cullect on accounts that she thought were the responsibility of her ex-husband. She tries to explain to the cullectors, “the judge said that my ex-husband is supposed to pay that bill,” but they keep on calling demanding payment.
Kate knows that this is simply an error and that when the divorce was finalized she and her ex-husband went their separate ways. Their credit was divided by court order and that was that…or so she thought. Kate is now learning the hard way what tens of thousands of other divorcees already know: court orders do not negate the original contracts with your creditors.
This means that regardless of what the court says, if you signed a contract to be responsible for payment on any type of credit (home loan, car loan, credit cards, etc.), then you are still legally responsible for making sure that the payment is being made.
This is pretty common, actually, because of the general financial stress that divorce places on people. The confusion only adds to the difficulties: even if your ex is a responsible person who doesn’t want to hurt your credit rating, as the article points out they may not know they’re the one who is supposed to pay. And if they have legitimate financial problems and start juggling bills, the black marks go on your record, too.
The article gives you a lot of good ways to plan around this problem, and it’s not that hard to do if you figure this stuff out before the divorce is over. Paying off all the accounts and credit cards with community funds and then opening separate ones is a very good idea. Refinancing or selling everything so that just one person is on the debt is important, too. The reality is that even if you have good relations with your ex, you don’t want to have your credit rating be outside of your control. It’s worth the cost of refinancing to keep your credit - there are many people out there who would gladly pay a few thousand if they could have an unblemished credit history, because they pay so much more every time they want to borrow.
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