How to Fix Bad Credit After a Divorce (from

How to Fix Bad Credit After a Divorce – Jeff Gitlen

October 17, 2018

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At a Glance:

Managing bad credit after a divorce can be difficult, but you can achieve financial stability and a good credit score by using certain strategies.

Going through a divorce is mentally and emotionally exhausting. Adding finances into the mix can make it downright brutal.

Once you begin to move forward with your life, financial troubles from the past can and often do continue to play a significant role in your efforts to rebuild. This is particularly true when you have shared financial obligations.

Marriage and divorce have little direct impact on credit – your credit score doesn’t change just because your marital status does. But when you make purchases together and combine your financial activities, your credit histories can affect each other.

Read MoreHow to Fix Bad Credit After Getting Married

Through joint-debt agreements, creditors and lenders take both your individual credit scores and your combined income into account. As such, those agreements can stay intact long after your marriage has ended. However, that doesn’t mean you’re doomed to a life of bad credit.

Below you will find what you need to know about fixing bad credit after a divorce.

Divorce and Credit

Aside from typical household bills, couples often mortgage homes, purchase family vehicles, and use joint credit cards. That may be fine when you’re together, but when you separate, problems can ensue.

Even though you’ve filed for divorced and moved on to live separate lives, any joint financial obligations remain joint financial obligation. So, both your credit scores will be impacted by your ability to manage those joint obligations together.

Divorce Decrees: The Courts Versus the Creditors

A divorce decree often represents the final legal stage of a divorce. It’s the court’s final judgment that officially terminates your marriage. Each decree may be different, but they typically determine the division of assets, financial support like alimony and child support, and the division of financial obligations.

Divorce decrees do not supersede credit or loan agreements. Even though your ex-spouse may be legally responsible in a court of law, your lenders make no distinction. As far as they’re concerned, your debt remains joined until it’s paid in full.

4 Steps to Fixing Bad Credit After a Divorce

1) Finding Out Where You Stand

To get a better idea of what accounts are pulling down your credit and where you should focus your rebuilding efforts, your first step should be to request credit reports from the three credit bureaus – Experian, TransUnion, and Equifax. Thanks to the Fair Credit Reporting Act (FCRA), those companies are required to provide consumers with a free copy of their credit report each year. You can also look into one of the best free credit report sites if you have already received a copy within the year.

2) Separating Shared Accounts

How you handle shared accounts before, during, or after your divorce depends on the type of account you have. Credit card companies don’t typically release one applicant, so if you have joint credit card accounts (not a credit card with an authorized user) then you should work with your ex to pay off and close those accounts.

Both parties aren’t required to close the account. Even if they aren’t paid in full, by closing the accounts, you protect yourself from any additional charges that may be placed on the card after the divorce.

When it comes to mortgages, you have a few options. One of the best options is to sell the home, if possible. This removes the debt from both of your names and, assuming you have equity in your home, gives each of you funds to start your new lives.

Selling can also give you money to pay off any existing joint debt. If selling the home isn’t possible, the next viable option would be for the one keeping the home to refinance it, assuming all the debt on their own and releasing the other party.

Joint debt on an auto loan is similar to a mortgage. If you both signed for the loan, then you’re both responsible, regardless of who drives the car. In this case, you can sell the car. Or, as is often the case, the spouse that will use the vehicle can refinance the loan in their own name, releasing the other party from financial obligations.

3) Cleaning Up Your Personal Credit

Once the divorce process is complete, it’s time to rebuild. Rebuilding often starts with a return to your credit report, identifying where the negative information lies so you can address it.

To do this, start by determining which accounts have missed payments, are delinquent, or have landed in collections. Take note that accounts in collections are worse than those in delinquency.

Bad credit can also stem from high balances. So after you address accounts that are late, delinquent, or in collections, you’ll also want to begin to pay down revolving credit accounts like credit cards.

4) Establishing New Credit Independently

You can further improve your credit by showing good credit utilization. One way to do this is through new debt.

This sounds counterproductive, but if you stay on top of your bills, taking out a new credit card, using it in moderation, and making payments on time can help increase your credit score. Doing the same for a new auto or personal loans can have the same impact.

Of course, never take on more debt than you can handle. If you do decide to apply for a credit card research the best credit cards for bad credit so you can increase your odds of approval. You may find that you need a secured credit card or a card with a cosigner. Whatever you do, don’t apply for multiple cards at one time, as that can drag your score down.

The Road to Good Credit

If you’ve done everything you could to improve your credit but you aren’t seeing it reflected in your score, you may just need to have patience. Assuming you’re responsibly managing your credit and you’ve resolved any issues with your joint accounts, you can expect your efforts to begin to pay off in about six months.

Additionally, poor payment history, defaults, delinquencies, and accounts in collections can take up to 10 years to fall off your credit history. But their impact will typically diminish over time if you stay current and continue to responsibly manage your accounts.

Divorce is a difficult time. It’s rife with emotional struggles, mental exhaustion, and sometimes costly legal fees. Unfortunately, your financial history can continue to play a role together, particularly if you have one or more joint account. However, you can achieve financial stability and a good credit score by following these steps with patience.

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