Divorce is undoubtedly one of the most challenging times a person can face. Understanding how divorce can impact your credit is crucial to protecting your financial future. Maintaining a good credit score is essential for many reasons, including qualifying for loans or credit cards, renting apartments and securing certain jobs.
In a divorce proceeding, you and your ex-spouse may agree on who is responsible for what debts. However, this is a civil agreement between you and your ex, so it doesn’t bind the creditors. This becomes problematic if your ex-spouse fails to uphold their agreed debt obligations, which can affect your credit.
How your ex’s failure to pay can impact your credit
When a marriage ends, the marital debt doesn’t simply disappear. You might have a court order stating that your ex-spouse is responsible for a specific debt, but creditors can still come after you for the money if that debt is also in your name. Remember, your creditors weren’t part of your divorce proceedings and, thus, aren’t bound by your divorce agreement.
For instance, if you and your ex-spouse co-signed for a car loan and your ex was granted the car in the divorce but failed to make payments, the lender can pursue you for the debt. Late or missed payments can be reported on your credit reports because the loan is also in your name. These delinquencies can cause a significant drop in your credit score.
It’s essential to protect your credit during and after a divorce. Remove your name from joint accounts, close joint credit cards and refinance joint loans to ensure they are solely in the name of the party responsible. Additionally, you should monitor your credit reports closely to address any inaccuracies or issues quickly.