Divorce and Credit Ratings

Like many consumers, you may have heard horror stories from other individuals about how getting divorced destroyed their credit ratings. Divorce itself doesn't hurt your credit. Rather, your credit suffers when your ex-spouse stops making payments on accounts that were awarded to him in the divorce but still appear on your credit report. You and your spouse can protect your credit ratings as much as possible during divorce by properly dividing your shared assets.

Liability

During a divorce, a judge will assign responsibility for any undivided assets to either you or your spouse. This does not, however, absolve either of you from being liable for payment. In addition, the account appears on both of your credit reports. Unlike you and your soon-to-be ex, your creditors are not bound by your divorce decree and can pursue either of you for payment. After your divorce is final, your ex-spouse's failure to make timely payments on accounts that remain in both of your names will damage your credit rating.

Dividing Assets

The Federal Trade Commission recommends properly dividing assets during divorce. For example, by paying off and closing joint credit card accounts or selling real estate you and your ex-spouse owe a joint mortgage on, you eliminate the debt and the chances that your ex-spouse's irresponsible behavior could negatively impact your credit history.

Credit Scoring

The Fair Isaac Corporation notes that 15 percent of your credit score depends on the length of your credit history, determined by the age of your oldest account. If your oldest account was a joint debt that you shared with your ex-spouse, closing the account will shorten your credit history and impair your credit score.

Your credit rating suffers less, however, from closing old accounts than if your ex-spouse were to default on a credit card that remained in both of your names or lose jointly-owned real estate to foreclosure. If your credit score drops after closing joint accounts, you can rebuild your credit rating by obtaining debt in your name only and managing that debt responsibly.

Credit Damage

A single mistake your ex-spouse makes with a joint debt--such as missing a credit card payment--can remain a part of your credit history for seven years. In addition, if you shared a mortgage, you remain tied to the account until your ex pays off the loan--leaving you subject to potential credit damage for years, sometimes decades, after the divorce was finalized.

Because creditors can pursue either of you for the debt, you could find yourself facing a lawsuit for repayment of a debt the divorce court decreed your ex-spouse was responsible for. Should you lose the lawsuit, the court records the judgment which subsequently appears on your credit report. Judgments are derogatory and, according to the Fair Credit Reporting Act, can appear within your file for longer than the seven year reporting period assigned to most negative credit entries, depending on your state. Eliminating your joint debt obligations during divorce is crucial to avoiding credit-damaging consequences.