How Does Divorce Impact My Credit Reports and Scores?
The fact that you have filed for a divorce does not affect your credit. The credit obligations you share together can affect your credit and credit score. Shared credit card accounts can be joint or authorized user, and for a loan can be joint or cosign. All of these accounts are reported to the credit reporting agencies and reported on both spouse’s credit reports.
A “joint” account is one in which you both have equal responsibility to pay the bill. For a “cosigned” account, one person is responsible for the payments, but if they default the cosigner is responsible. “Authorized user” is has permission to use the card but isn’t responsible for the payments. Accounts that are considered “individual” accounts are only in one name and are not shared, so these accounts are not impacted. In fact, if you want to be totally responsible for your credit, you shouldn’t have any shared accounts. But that can be a problem when you purchase a home.
Prior to the divorce being finalized these accounts should be closed or one person should be removed from the account. By law the creditor can’t close an account due to divorce, but can be requested to do so by either spouse. The creditor does not have to change it to an individual account and may require you to reapply, and extend credit based on your credit solely. If it is a mortgage or home equity loan, you may have to refinance the loan.
If accounts aren’t closed or changed, one person will be specified in the divorce decree as responsible for the accounts. Just because the court order specifies this person, the lender’s agreement hasn’t changed which still lists both spouses as responsible. In this situation, if the responsible party doesn’t pay the bill, both credit reports will reflect the late payments. Therefore, the person not responsible for the account has their credit harmed also.
On the other hand, the person no longer responsible for the joint account keeps the card and makes purchases. This can get very messy. The responsible party in this case will not want to pay. As mentioned earlier, the lender will come after both parties. There is even more of a risk on authorized user accounts, since the other person isn’t responsible at all.
You divorced this person, do you really trust them? You should not continue to have any joint accounts, including car or home loans. You can’t risk it. Your credit and finances can be destroyed for years.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.