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Published on August 10, 2023

Tips on Financial Awareness During a Divorce

by Psych Times Staff

Divorce is a life-altering event that can have far-reaching consequences, touching every other aspect of your life, including finances. There are many logistics to consider when going through a divorce, including financial separation. While divorce does not directly affect your credit score, it is normal for people to experience credit issues following a divorce because many of the financial factors they are used to will change drastically. 

You will likely have to figure out how to make payments with less money than you had with combined incomes, manage previously shared debt, and take on additional obligations such as a mortgage or auto loan. This blog will unpack one commonly asked question: does divorce affect credit scores? The following section will also discuss securing your financial future if you are concerned about going through a rough patch.

Impact of Divorce On Credit For Both Parties

Divorce procedures can be emotionally draining when disagreements over assets and alimony develop. The stress of dealing with legal fees and other expenses might also lead to missed bill payments and other financial blunders. This section will unpack how divorce might harm both partners’ credit. 

Changing Your Income

Your income will most certainly change as a result of your divorce. You may be adjusting to making alimony, child support, or other payments you did not previously have. This change in monthly income affects your ability to make payments on time and in full for a period of time. 

Gathering the necessary paperwork is a key step in the divorce procedure. Because you and your soon-to-be ex must complete and submit a sworn statement of income, expenses, assets, and other responsibilities, you should seek guidance from a wealth manager, preferably a Certified Divorce Financial Analyst (CDFA). These professionals will be able to assist you in determining what you possess and how much you need to continue living at your preferred standard of living while also assisting you in planning for your financial future.

Missing Joint Debt Payments

Because joint accounts appear on both partners’ credit reports, if one partner defaults, the other suffers. This category includes credit cards, mortgages, and installment loans. The joint accounts will remain on your credit report, whether or not the invoices are paid. Aside from that, there is also the possibility that one or both spouses incur new debt without the other’s awareness.  

Closing Joint Credit Cards

Consider the following when closing a joint credit card. To begin, your credit usage ratio may rise. Credit usage is the percentage of available credit that is currently being used. If you close one credit card while keeping others open with outstanding charges, your debt proportion will rise. Keep track of your available credit and avoid exceeding it. Maintaining a 30% or lower proportion may assist you in maintaining a good credit score.

Second, if you were a spouse who relied on your ex-spouse’s good credit and consistent payments, canceling a joint credit card may harm your credit score. You are now solely responsible for repaying any outstanding debts in your name and keeping your credit history current. 

Tips To Rebuild Your Credit Score

While you and your ex-spouse hold a joint account, you should be able to work out how to disburse the accumulated debt. Monthly bills that are reasonable with two salaries may become more challenging to handle when you are on your own. As a result, sharing the debt may benefit each spouse, allowing you to avoid accruing enough debt to harm your credit score. 

Monitor Your Credit Report

Lenders recommend reviewing your credit report and score frequently to know exactly what you’re financially responsible for. 

Build Your Credit History

Apply for a credit card in your name, make monthly purchases, and pay them off in full to begin developing your credit history. A track record of on-time payments can help you improve your credit score.

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