You may be surprised to learn that it is action during/after the divorce, not the divorce itself that causes credit issues.
If a Rancho Cucamonga divorce is on the horizon, not only are you trying to deal with the emotional fallout, but you’re also trying to plan for the future. Dividing assets and starting over is an incredibly stressful, daunting prospect. If you’ve been struggling with the state of your finances already, you may wonder what kind of hit your credit will take as a result of the divorce. At the Law Office of Terrence Fantauzzi, we can evaluate your financial situation and determine if bankruptcy is the best option for you.
What is a credit score?
VantageScore 3.0 and FICO 8 are the most commonly used credit score models. They range from 300 to 850. FICO also uses specialty scores for credit cards and auto loans. Both models use the same data but weight the information differently. This three-digit number estimates how likely you are to repay the money you owe on everything from credit cards to your mortgage and automobile and personal loans.
Although creditors typically have their standards for what they consider acceptable. A low credit score may not stop you from being approved for a new credit card or loan, you may not get the best interest rate or the deposit you need may be higher than if you had a higher score. The general guidelines are as follows:
- Poor credit: Below 629
- Fair credit: 630 – 689
- Good credit: 690 – 719
- Excellent credit: 720 – 850
You may have access to better introductory offers and more credit when you have a better overall score. Borrowers with scores above 750 often qualify for 0% financing or introductory interest rates. If your score is poor, sometimes bankruptcy can help you reset and begin building good credit.
Credit bureaus store the information about your credit accounts that are used in the credit score models. The three largest are:
Creditors buy reports that provide details about you credit score. These reports are often used as the basis for their decisions regarding extending credit to you.
How Your Credit Becomes Collateral Damage
In California, marital status doesn’t impact your credit score at all. The credit agencies don’t care whether you’re married or single. However, the way you handle certain financial situations coming out of your marriage can affect its status. It might be a slight dip or a plummet. Joint accounts and the debt that you carry can affect each of your credit scores.
The credit reporting agencies provide information for each account associated with you, regardless of whether you’re listed as a cosigner, joint owner or authorized user. The account status can affect your credit. As long as the account has both your names, you’re both legally responsible for it.
You can take action to protect your credit before divorce proceedings begin by making a list of all joint accounts, including mortgage, credit cards and banking. Remove your name from the accounts you were not the primary account holder and remove your spouse’s name from those you are. If your divorce is amicable, you and your spouse could decide which accounts to split if you’re cosigners.
While your divorce decree may specify which of you is responsible for specific accounts opened during your marriage, it doesn’t affect the contracts with the lenders. The court decides who is responsible for paying the debt. Unfortunately, if your ex doesn’t make the payments on a jointly held account, per the court, the creditor can come after you for payment.
Late or non-payment of this account can negatively impact your credit score, regardless of who the court says is responsible for it. In situations where one spouse is vindictive, he or she may make large purchases on the account with the intent of wrecking the other’s credit.
Protect Your Credit
A divorce is the mile marker for the beginning of the next chapter of your life. It can be an exciting time, especially if you can protect your credit to make moving forward simpler. Steps you can take include:
- Maintaining a civil relationship with your ex and working together to pay off and close joint accounts opened during your marriage.
- Confirming with lenders that each account in your name does not list your spouse as an authorized user. Remove them if they do.
- Convert the joint account to an individual account if paying it off and closing it is not realistic.
Already Have a Poor Credit Score?
COVID-19 has thrown pretty much everyone under the bus. Unemployment and divorces are on the rise, and credit scores are a casualty. If you were already struggling financially, the loss of your job or an unexpected end to your marriage can be hard hits, emotionally and financially. Don’t spend months suffering through harassing creditor calls or letters.
Contact us today or call 909-552-1238 to schedule a free consultation. We can discuss your situation and find out if bankruptcy can help you get out from under a mountain of debt and help you start rebuilding your financial health.