Divorce is never a pleasant experience. Once you decide to part ways, there are a number of loose ends that need to be tied up. Although both parties may not want to deal with the looming issues, these issues need to be resolved; otherwise, they can come back to haunt you later on in life.
Marriage is an emotional commitment, but it’s also a financial commitment. Some of the most challenging issues to deal with after you’ve split up are those related to money. Although the matrimonial home is one of those issues that needs to get resolved, protecting your credit rating should also be a top priority.
What is a Credit Report?
People seem to be continually confused by their credit report (aka credit rating) and how it impacts their ability to get credit. This document alone can impact your ability to work at certain companies, rent an apartment, get a credit card and even open a savings account.
This detailed collection of your entire history of borrowing habits is being used by more and more institutions all the time. Like it or not, many places consider this type of reporting a good indicator of your character. The report contains details on your payment history, your previous loans, any liens against your property, where you’ve lived and worked, whether you have been sued and whether you have declared bankruptcy in the last seven years.
How to Protect Your Credit
It’s important to protect your credit rating at all cost after a divorce. Although both parties involved are adults, emotions sometimes run high. There are plenty of stories out there about vengeful spouses taking revenge by ruining their ex-spouse’s credit rating. Your ex-spouse may go on a spending spree on your joint credit card or stop making mortgage payments. Similar to identity theft, it’s important to take the necessary steps to protect your credit rating.
Chances are that as a married couple, you and your spouse took out several loans, joint lines of credit under both of your names. Since you are no longer together, you need to make sure that you cover all of your bases.
If the other party will be retaining a line of credit, make sure to get your name removed. Make sure any action they take cannot negatively impact your credit score. And if you will not be keeping any of the aforementioned lines of credit, you need to start rebuilding your credit with new lines of credit.
Also, do an audit of your credit report and dispute anything negative that does not belong. Especially if it belongs on your ex spouse’s credit report.
Building Your Credit
Similar to students and immigrants, spouses can be in for a rude awakening after a divorce. The spouse that stayed home and raised the children could have a difficult time obtaining credit after a divorce. Even if you’re happily married, it’s important to maintain an active credit report. Sometimes no credit is just as bad as poor credit. You’ll have a tough time renting an apartment or obtaining a mortgage without any credit history at all.
When you’re married, you should continue to maintain an active credit report. That doesn’t mean taking out a $30,000 line of credit and building that gazebo in the backyard you’ve always wanted; you need to use credit responsibly. Consider taking out a low-limit credit card; it can be an excellent way to build up a solid credit history.
For those already divorced, it’s important to start building your credit history immediately; credit cards are an excellent way to do that. If the bank turns you down for a regular credit card, you might consider a secured credit card. With a secured credit card, once you’ve made a deposit it’s like a regular credit card. By using your credit card responsibly over time, you can help build up a decent credit score.