A divorce impacts not only your family life but also your financial life. While simply filing for divorce will not affect your credit score, the fallout of the dissolution could. Learn 4 ways a divorce can affect your credit, and how to protect it.
1.Reduced Income
Going from two incomes to one can dramatically impact on your finances. If you don’t make a financial plan, you may find yourself with back rent due, an increased credit card bill, or missed loan payments, all of which can have a negative effect on your credit.
2.Decreased Credit Limits
Most credit cards agreements include a stipulation allowing creditors to lower your card limit should your family income decrease. As a result, a dissolution could lead to a decreased credit card limit. If you are not aware of this, you can easily and unintentionally max-out your card limit and negatively impact your score.
3.Joint Debt
Many marriages involve large purchases and cosigning on loans. The creditors of the loan do not care if you and your spouse are no longer together. Even if said property is given to your spouse in the divorce agreement, the property is still partially in your name. If your spouse falls behind on payments, you and your spouse will be legally responsible for the credit damage that results.
4.Refinancing Your Home
If you decide to move your home into a single person’s name, you may have to refinance the loan in order to afford the payments. As with any refinancing, the bank requires a hard credit check, which can damage your score. Additionally, as the sole person on the loan, you will have a large amount of debt under your name, which can limit your ability to make any large purchases in the future.
How to Protect Yourself
Both you and your spouse can experience the negative credit effects of a divorce, so how can you protect yourself against them? Here are a few steps you can take to help minimize the effects.
- Set up a budget – Losing the income of your souse can make it difficult to manage your monthly expenses. Take the time to create a new monthly budget. Make sure to account for any spousal or child support payments, as well as any other debt you are responsible for. This will not only help you manage your new situation but can also minimize your credit card spending.
- Close joint accounts – If you pursue a divorce, you may decide that a joint account is no longer appropriate. Make sure to follow the outlines of your divorce agreement, and close the appropriate joint bank accounts. If this is not possible, look into removing your or your spouse’s name, and create an individual account.
- Shift debt into one person’s name – Shared debt can continue to impact your credit long after a divorce has settled. As long as your name is assigned to the debt, creditors consider you financially responsible. Therefore, it is a good idea to separate your marital debts accordingly. If you have a loan in both your names, look into a new loan agreement or consider removing your name entirely. Although this may affect your credit initially, the impact will be minimal and will be fixable with a few months of credit-building.
Contact Our Dutchess County Divorce Lawyers at (845) 605-4330.
Filing for divorce is a stressful and complicated process. Let our experienced Dutchess County divorce attorneys help you. At the Law Office of Dennis R. Vetrano, Jr., LLC, we take the time to walk you through the entire process, assist you with the proper paperwork, and advocate for you throughout your negotiations. Our lawyers take the time to analyze the details of your finances and can help minimize the negative impact the divorce may have on your credit.
Call the Law Office of Dennis R. Vetrano, Jr., LLC today at (845) 605-4330. We have more than 50 years of combined experience and serve clients throughout Dutchess County. Schedule an appointment now.