This is the second blog in the Divorce and Finances series, addressing common questions I hear as a Certified Divorce Financial Analyst (CDFA) during the pre- and post-divorce process. This blog will explain how to address your credit score after divorce. A podcast version of this blog series can be found on our resource center here.
How important is personal credit?
Personal credit will become more important to you once you are divorced so if you do not already have established credit you need to work towards obtaining some. You may want to start the process of obtaining a stronger credit score prior to divorce as you will need strong established credit to rent a home, obtain a mortgage or buy/lease a car.
What is the first step in addressing my credit after divorce?
The first step in addressing your credit after divorce is to obtain a copy of your credit report from each of the three agencies (Equifax, Experian, TransUnion) so you can review your current credit record and credit score. Each agency is required by law to provide you (upon request) one free copy of your credit report each year so requesting a report from each agency every 4 months helps you monitor your credit easily. You will want to review the credit report to understand what credit you have tied to your name (mortgages, car loans, credit cards, student loans, etc.), see the outstanding balances on your existing credit, and ensure everything looks correct.
What do I do if there are mistakes on my credit report?
Any discrepancies (i.e., unauthorized cards, incorrectly shown outstanding balances) need to be addressed by contacting the credit bureau directly. Are you listed as a joint applicant (considers both individual’s credit histories) on the card or simply an authorized user (only considers the primary owner’s credit history)? It is recommended to remove your spouse from any accounts in your name where they are listed as an authorized user. If they are a joint owner, the account would need to be closed. However, if you do not have a credit card in your name (versus being named as an authorized user on your spouse’s account) be sure to open a new credit card in your name before closing any joint accounts.
Should a newly divorced person obtain a credit card if they did not previously have one?
Depending on your credit history, you may want to consider applying for a new credit card to begin building more credit history. If you currently have no credit and are unable to obtain new credit, start with a secured credit card. Secured credit cards require a refundable security deposit in exchange for a line of credit and are used to help build a reliable credit history. The only way to improve your credit score is to use your credit responsibly and make all payments timely. Increasing your score takes time – there is no quick fix.
For more relevant blogs on divorce finances, please check out the other articles in the series: