Darren Meade, American Chronicle
September 22, 2006
a marriage ends in divorce, the lives of those involved are changed
forever. During this time of upheaval, one thing that shouldn’t have to
change is the credit status you’ve worked so hard to achieve.
for many, the experience is the exact opposite. Unfulfilled promises to
pay bills, the maxing out of credit cards, and a total breakdown in
communication frequently lead to the annihilation of at least one
spouse’s credit. Depending upon how finances are structured, it can
sometimes have a negative impact on both parties.
The good news
is it doesn’t have to be this way. By taking a proactive approach and
creating a specific plan to maintain one’s credit status, anyone can
ensure that “starting over” doesn’t have to mean rebuilding credit.
first step for anyone going through a divorce is to obtain copies of
your credit report from the 3 major agencies: Equifax, Experian®, and
TransUnion®. It’s impossible to formulate a plan without having a
complete understanding of the situation. (Once a year, you may obtain a
free credit report by visiting www.AnnualCreditReport.com.)
you’ve gathered the facts, you can begin to address what’s most
important. Create a spreadsheet, and list all of the accounts that are
currently open. For each entry, fill in columns with the following
information: creditor name, contact number, the account number, type of
account (e.g. credit card, car loan, etc.), account status (e.g.
current, past due), account balance, minimum monthly payment amount,
and who is vested in the account
Now that you have this information at your fingertips, it’s time to make a plan.
There are two types of credit accounts, and each is handled differently during a divorce.
first type is a secured account, meaning it’s attached to an asset. The
most common secured accounts are car loans and home mortgages. The
second type is an unsecured account. These accounts are typically
credit cards and charge cards, and they have no assets attached.
it comes to a secured account, your best option is to sell the asset.
This way the loan is paid off and your name is no longer attached. The
next best option is to refinance the loan. In other words, one spouse
buys out the other. This only works, however, if the purchasing spouse
can qualify for a loan by themselves and can assume payments on their
own. Your last option is to keep your name on the loan. This is the
most risky option because if you’re not the one making the payment,
your credit is truly vulnerable. If you decide to keep your name on the
loan, make sure your name is also kept on the title. The worst case
scenario is being stuck paying for something that you do not legally
In the case of a mortgage, enlisting the aid of a qualified
mortgage professional is extremely important. This individual will
review your existing home loan along with the equity you’ve built up
and help you to determine the best course of action.
As a fellow member of the Divorced fraternity, The President of Victory Mortgage Lenders, also went through a Divorce.
it comes to unsecured accounts, you will need to act quickly. It’s
important to know which spouse (if not both) is vested. If you are
merely a signer on the account, have your name removed immediately. If
you are the vested party and your spouse is a signer, have their name
removed. Any joint accounts (both parties vested) that do not carry a
balance should be closed immediately.
If there are jointly
vested accounts which carry a balance, your best option is to have them
frozen. This will ensure that no future charges can be made to the
accounts. When an account is frozen, however, it is frozen for both
parties. If you do not have any credit cards in your name, it is
recommended you obtain one before freezing all of your jointly vested
accounts. By having a card in your own name, you now have the option of
transferring any joint balances into your account, guaranteeing they’ll
Ensuring payment on a debt which carries your name is
paramount when it comes to preserving credit. Keep in mind that one
30-day late payment can drop your credit score as much as 75 points. It
is also important to know that a divorce decree does not override any
agreement you have with a creditor. So, regardless of which spouse is
ordered to pay by the judge, not doing so will affect the credit score
of both parties. The message here is to not only eliminate all joint
accounts, but to do it quickly.
Divorce is difficult for everyone involved. By taking these steps, you can ensure that your credit remains intact.