Rebuilding Credit after Divorce
Eileen St. Pierre, The Everyday Financial Planner
Divorce can be life-altering and stressful for all parties involved. Being left with little or no credit or a tarnished credit history only adds to the stress. The first thing to do to improve your credit history as a single person is to acquire your own credit.
If you have income, including alimony, apply for an account in your name only. Be sure to steer clear of credit cards or loans with a very high interest rate regardless of special offers such as frequent flyer miles and free hotel rooms, especially if you might not be able to pay the balance off at the end of the month.
- Watch out for high annual fees as well.
- Websites like Credit Karma and Creditcards.com can help you choose a credit card that’s right for you.
A secured card is a good option if you have trouble getting a credit card. A secured card requires you to make a deposit into a bank or credit union account and this deposit becomes your credit line. It gives you a chance to prove yourself without putting the bank at risk. Paying off secured loans, such as a car loan, is another way to rebuild your credit history.
Any joint credit card accounts opened with your ex-spouse will show up on both your credit reports (you can get a free copy of your credit report annually at www.annualcreditreport.com). Both of you are liable for the total amount of debt on any joint account, regardless of what is stated in the divorce decree.
- Don’t assume your creditors will automatically close your joint accounts. By law, a creditor cannot close your joint account if you get a divorce, but can do so at the request of either spouse.
- If your ex-spouse was the one who paid the bills, and he/she had a history of making late payments or missing payments, you should get out of any joint account as quickly as possible or call the issuer and put a freeze on the account until you both agree who owes what. Minimum payments must still be made on frozen accounts.
This doesn’t mean you should close all your accounts, because older credit accounts in good standing help your credit score more than new accounts do. The credit card company may let you change a joint account to an individual account. They aren’t obligated to do this, but it’s worth asking especially if the account will help improve your credit score. In the case of a mortgage or home equity loan, the lender will likely require you to refinance the loan to remove your ex’s name from the obligation.
If an account cannot be changed from joint to individual, than it may be a good idea to close the joint accounts over time while you build up new credit in your own name. This way you will not be held liable for any new debt on a joint account that is not yours after a divorce.
[The Federal Reserve offers 5 tips to improve your credit score.]
Building your credit history is a slow process. Be patient and focus on paying on a few credit accounts with as close to a perfect record as you can get.
Visit my Debt Management page for more information.