If you are considering or have recently filed for divorce, the last thing on your mind is how it will affect your credit score. Even if you did not initiate the divorce process, credit problems can arise.
Banks, mortgages, and many other organizations check your credit report to help them decide whether or not you’re a safe person to lend or do business with. Before the divorce process starts, look for a top-rated team of divorce lawyers in Arizona, they will help you understand how to get through a divorce without ruining your financial future.
What’s a Credit Score?
It’s a number representing your financial health. It determines whether you’re a good risk for credit cards, loans, mortgages, and other financial products.
They base credit scores on the information in your credit report. It includes details about your past borrowing habit, whether you pay bills on time, how many accounts you have, and how much money you owe. The Credit scores range from 300-850; the higher the score, the better your chances of getting approved for credit at lower interest rates.
When There’s an Income Change
When there’s an income change, it’s hard to predict how it will affect your credit score. If your income goes down, your credit score will decrease.
Lenders get concerned about risk; they want to see that you have enough money to pay back what you borrow. If your income decreases, lenders will view you as a higher risk, making it harder for you to get a loan or a credit card.
Lenders will be more willing to lend to you if your income has increased because they know they’ll recoup their investment when the loan is paid off.
Joint Account Affects Credit Score
Joint accounts will impact your credit score negatively when you do not pay your bills on time or miss payments. When this happens, lenders may view both people as unreliable and won’t approve loans for them in the future.
In addition, if one party files for bankruptcy, their spouse’s name is still attached to any joint accounts—even if they don’t live together anymore. Those debts can go into default and become delinquent unless they have been removed from liability.
To keep your credit score high, you should remove all joint accounts from your credit report and ensure that the debt is paid off entirely before the divorce gets finalized. You can also pay off all of your debts jointly without fail.
Can You Repair Your Credit Score?
Yes, you can. A low credit score makes it harder to get loan approval or a credit card, and it makes it more expensive when you do. The lender will give you a loan with high interest to minimize risk.
But while bad credit is often the result of circumstances beyond your control, it’s possible to repair your score. Here’s how:
- Analyze your credit report. Get a copy of your credit report from credit reporting agencies: Experian, Equifax, and TransUnion. The report will include how much debt you have compared with your available credit on each account and any late payments. Scrutinize for any errors.
- Understand how the credit bureaus calculate your score. Each bureau has its algorithm for determining your score, but they all consider similar factors: payment history, credit utilization ratio, credit history length, etc.
- Fix credit report errors. Correct any mistakes that appear on your report. If any information is inaccurate, you should dispute it with the credit agency that provides the report. The agency will investigate the matter and ensure that they update their records accordingly.
- Pay old balances. There will be an immediate improvement in your credit report and scores when you pay off the debts.
- Don’t open new accounts unless necessary. New loans, lines of credit, and other debts will lower your score even if paid on time.
- Ensure your payments are on time. Late payments will be on your credit report for seven years from the date they got reported.
The financial toll that divorce takes on both parties is frightening. Even more, so is the potential impact on your credit score and how it will affect your chances of obtaining loans and credit in the future. You can get your credit score back on track after getting a divorce, but handle divorce with care for the sake of your credit and finances. Always consult an attorney before you finally end your marriage. Doing so will help ensure that any complications or damages will be minimal.