How divorce can hurt your credit score and how to protect yourself

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Divorce can be a stressful and costly ordeal. As most people going through a divorce tend to focus more on asset distribution and custody, there is one major feature that tends to be ignored — what it does to your credit score.

Divorce does not directly reduce your credit score, but the financial changes it brings may result in consequences that impact your creditworthiness. Knowing these dangers can allow you to move through the process safely.

How divorce may impact your credit score

Although the process of divorcing is not noted on your credit report, the monetary consequences of a breakup can negatively impact your credit standing indirectly. Here's how:

1. Late payments on joint accounts:

After and during a divorce, bills have a tendency to fall through the cracks, particularly if there's uncertainty about who is going to be responsible for joint debts. Late or missed payments on joint credit cards, mortgages, or loans can very quickly bring down your credit score.

2. Liability for joint debts:

Divorce settlements split up debts, but creditors do not have to follow your divorce decree. When your ex-spouse is liable for paying a debt under your settlement but doesn't pay it, lenders will still hold you and your ex-spouse liable. A default can show up on your credit report even if you weren't obligated to make the payments.

3. Heavy debt burden:

Divorce tends to mean increased living costs, attorney fees, and expenses to establish a new home. If you depend increasingly on credit to cover these costs, an increase in your credit utilization rate may harm your credit score.

4. Alteration of income and financial stability

Loss of family income or dependence on alimony may cause cash flow problems. A lower financial buffer increases difficulty in meeting debts and keeping payments current, threatening to harm your credit record.

5. Closing joint accounts:

After divorce, couples often shut down joint accounts to sort out their finances. Closing old accounts, however, can decrease your average account age and diminish your available credit, both of which can nudge your credit score down slightly.

Steps to safeguard your credit during and after divorce

Maintaining your credit during divorce is a matter of advance planning and proactive actions:

1. Split your finances early:

Close joint accounts when you can, or roll them over into your name with the lender's permission. Make sure new credit accounts are opened only in your name.

2. Keep an eye on your credit report:

Pull your credit report with all three major bureaus (Experian, Equifax, and TransUnion) throughout the divorce process. Keeping an eye on it allows you to catch any missed payments or fraudulent activity early.

3. Establish a new financial plan:

Adjust to your post-divorce financial reality by making a new budget based on your new income and expenses. Make sure to prioritize keeping at least the minimum payments on all debts to protect your credit history.

4. Refinance or pay off joint debts:

Refinance mortgages, car loans, or personal loans wherever possible to eliminate one party's name. Alternatively, with your ex-spouse, pay off joint debts in full to cut out shared responsibilities.

5. Communicate clearly:

Although feelings are high, proper communication with your former spouse on matters of finances can avoid discrepancies that may negatively impact both individuals' credit.

Divorce imposes significant life changes, and your credit score can become an unplanned casualty if you're not proactive. While dissolving a marriage doesn't necessarily damage your credit, the financial complexities that remain can wreak havoc over time if not handled properly. Taking a proactive approach to uncoupling finances, tracking credit activity, and setting a realistic post-divorce budget will help you maintain your financial well-being — and provide you with a fresh start.