Why Divorce Hurts Your Credit

Knowing that divorce has no direct impact on a credit score calculation might ease the stress of a separation, however, a good chance exists that the divorce could cause financial duress that wrecks the score. This occurs because married couples often join their accounts. The best way to mitigate the potential effect of a divorce on a credit score is reworking finances before the divorce becomes official.

Identification

Divorce makes no difference to a credit score, because the FICO formula does not factor in life events like a divorce. What can result from a divorce is a fight over which party owes bills. This could lead to a standoff that means missed payments on both spouses' reports, because spouses frequently have joint accounts. Joint accounts hold both parties liable for the balance. Also, married couples often give one of the parties all of the duties of managing accounts, so one spouse might not even know about certain accounts.

Considerations

A dissolution of marriage can put one or both spouses in a terrible financial situation. It is not unheard of for one spouse to try to harm the other spouse by purposely not paying a bill on a joint account. In some cases, the creditors might refuse to remove a cosigner on an account. This is especially true for a mortgage, where only refinancing the home loan can remove the cosigner until the court decides who takes on the responsibility for the account.

Preventing Credit Damage

When a marriage looks to be heading for a divorce, it is wise to take out a credit card on your own, especially if you are a homemaker or have little income, suggests Wallet Pop. As soon as you divorce, you might not make enough to qualify for a new account. Also, close joint accounts and try to pay off the balances. The credit bureaus probably won't care about documentation of a divorce when you fall behind on payments, so pay off any bills until the courts decide how to divide up the debt.

Tip

Couples who worry about credit after a divorce should try to keep as many accounts separate as possible. Instead of putting both spouses' names on a mortgage, for example, the spouse with the best credit can apply for the loan and the other puts up some collateral. Also, review your credit report for potentially negative items, such as missed payments. Always check on accounts until the divorce comes to an end. At the very least, make minimum payments, because a single missed bill can wreck your score for months.