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Getting a divorce is a major change that can affect different aspects of your life, including your financial habits and obligations. While there are many important decisions you'll have to make during this process, it's a good idea to also keep a close eye on your credit score.
Of course, it's always important to monitor your credit score, regardless of your marital status, but 42% of men and 54% of women say their credit score declined after divorce. However, the act of getting a divorce does not inherently lower your score, but the changes in your financial obligations might.
Below, Select breaks down the different ways a divorce can impact your credit score, and how you can protect yourself from a potential decrease.
Missing payments on joint debt
The divorce process can be emotionally demanding. As a result, it can be easy to forget to pay your credit card bill or car loan payment. But there's an even bigger reason why you might be apt to accidentally miss a payment on any debt you and your partner had together.
"Couples get joint credit cards, a mortgage, a car loan and some other joint debts," said Jim Droske, President of Illinois Credit Services. "During a marital settlement agreement, a judge decides who will be responsible for certain debt payments. But even if your spouse is told to make payments on your joint credit card, in the eyes of a creditor you're both still responsible for it because credit was extended to you both."
Droske explains that people tend to think that they no longer need to pay down some joint debts because a judge assigned the responsibility to their spouse. But if the debt is still on your credit report and your spouse misses a payment, it can still affect your credit score.
Because of this, it's important to always be aware of what's on your credit report. You can use a free service like Experian to look at your credit report and credit score regardless of whether or not you're going through a divorce. This will help you figure out what loans and credit cards are under your name and where a potential missing and/or late payment might occur.
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Once you know what's on your credit report, it's a good idea to at least make the minimum payments on time.
"Lots of people get spiteful during a divorce and don't want to make payments toward financial obligations they had with their partner," Droske said. "If you know what's on your credit report, no matter what, make sure the minimum payments are made otherwise, you're jeopardizing your credit."
Closing joint credit cards
So let's say you have two credit cards with a $10,000 limit on each, which gives you a total available credit of $20,000. If you spend $5000 on one card, you're using just 25% of your total credit. But if you close one card your total available credit will be reduced to $10,000. Even though you didn't spend more money, your utilization is now 50%, and a higher utilization can lower your credit score.
When it comes to divorce, couples generally don't want to maintain joint credit cards once they're separated. So just keep in mind that closing a joint credit card might lower your credit score because your credit utilization can be impacted as a result.
Brett Holzhauer, a reporter on the Select team, was able to maintain his credit score with no impact after his divorce because the majority of the credit cards were in his name. However, he notes that if you cancel any cards between you and your partner and your score takes a dip, starting out with healthy credit gives you more flexibility to take that hit.
Being removed as an authorized user on your partner's credit card(s)
An authorized user is an additional card holder on someone else's credit card account. Even if you aren't obligated to make payments toward your partner's credit card bill, being an authorized user on their credit card can improve your credit score if they spend responsibly and make consistent, on-time payments. This can be especially beneficial for a spouse who hadn't previously had any open accounts on their credit report.
However, if you're removed as an authorized user on your spouse's credit card(s), your credit utilization can be impacted and you could see a decrease in your credit score.
Understand exactly what's on your credit report
Whether you're married or not, knowing what's on your credit report will help you understand what debts are impacting your credit score. But it's especially important to keep an eye on your credit report when you're going through a divorce so you know which debts you're both responsible for and which cards need to be cancelled.
"Once the agreement is made on who will pay what, people tend to think they're off the hook if the other person is responsible for paying the debt," Droske said. "But a late or missed payment will impact your and your spouse's credit. "People think they can just call up the creditor and say they aren't responsible for the payments anymore because they're getting a divorce, but it doesn't work that way."
It also helps to monitor your credit for any new credit accounts or loans you don't recall opening yourself. New, unfamiliar accounts on your credit report can be a sign that someone is using your name to get a new line of credit. Experian can also help you monitor your credit, but our roundup of some of the best credit monitoring services can provide other options.
Consider the possibility of keeping your accounts as separate as possible once you get married
"This doesn't work for every couple, but obligating yourself to just your own separate accounts can make things cleaner in the event of a divorce," Droske said. This way, you won't have to worry about a partner failing to make a payment on a card that's under your name.
Of course, there are some financial obligations that just might be harder (or even impossible) to keep separate — like a mortgage payment on a house (here's how one person dealt with their home purchase after a divorce). You may also consider a prenup (or a postnup if you're already married) so you can plan out how to divide obligations and assets in the event of a divorce. But if you and your partner prefer to combine all your finances, here are three important recommendations from a family wealth advisor that you might want to consider.
Freeze your credit
A credit freeze allows you to restrict access to your credit report without impacting your credit score. Because lenders require a credit check before approving you for new loans and lines of credit, neither you (nor a spiteful ex-spouse) will be able to acquire new debts in your name until your credit is unfrozen.
"Some situations get nasty and there are circumstances where a spouse opens up an account without you knowing," Droske explained. "That's why you need to check your ,credit report and consider a freeze on your credit so you're more in control, and people can't open up new debts in your name."
From an emotional standpoint, there's a lot that can occur when getting a divorce. But at times, the process can feel even murkier when it comes to the financial effects and potential impact on your credit score. The act of getting a divorce doesn't impact your credit score, but changes in your financial obligations (or former partner's) as a result of a divorce might.
One of the best ways you can prepare is to monitor your credit score so you know exactly what's on your report (and, therefore, what you're financially responsible for according to lenders). Be aware of the potential for any missed debt payments and changes in your credit utilization rate after a divorce. And if you want to take an extra precautionary step, you might consider freezing your credit for a little while.