Divorce Series: Managing Credit During Relationship Changes

credit score

Managing through a relationship transition can be challenging enough without worrying about how such a change might impact you financially. Over the years, I’ve seen some of those closest to me go through these kinds of changes and have always been in awe of their strength.

Whether you are facing a permanent change or considering something more temporary, it’s important to evaluate how these changes might impact your credit. After speaking with my good friend Darren Coakwell, owner of Crossover Credit Solutions, here are some things to consider:

  1. Current Credit Picture
    Understanding the current state of your credit , and what debts you owe together, can help you know what will have to be unraveled if you separate. It can also help provide insights around the state of your credit as an individual and (if needed) help you design a plan to improve it.
  2. Shared Assets
    If you have a home, retirement, or other assets acquired during your marriage, itemize them to understand what will need to be divided amongst the two of you. If you use a financial planner, he/she can be a good source for this information.
  3. Managing Current Credit Lines
    In most circumstances, shared credit lines will be closed once a divorce is finalized. When this happens, the closing of these accounts can negatively impact your credit. With this in mind, it’s important to consider the timing of things that are credit sensitive – such as financing the home solely in your name – before you close these lines.
  4. Protecting Credit with a Credit Freeze
    One way to prevent new credit lines from being opened without your knowledge is to put a credit freeze in place. With a freeze, the bureaus will not release your credit information without your consent. While this might be a bit of a pain if you want to open a legitimate account, it can help mitigate the risk that your credit could be damaged should things become contentious.
  5. Details Matter
    If you decide to move forward, it’s important that the divorce decree is as detailed as possible around what will happen to debts/assets–and when these changes will occur. As someone who regularly sees decrees when helping folks finance their homes, the more explicit here the better for all involved.

During times of change, keeping things as straight-forward as possible can help ease the burden. Arming yourself with knowledge around what you should do legally (via an attorney) and what you can do financially (via a mortgage lender or credit consultant) may help reduce your stress.

 

p.s. Here is a good amount of information about how FICO works if you were wondering.

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