Divorce can have a major effect on your credit score, but there are ways to repair it. Reducing debt, making timely payments and building new credit are all great ways to rebuild it after divorce.
The initial step to rebuilding your credit after divorce is understanding what’s on your report and taking steps to rectify it.
Pay Off Joint Accounts
Divorce can have a significant impact on your credit score, particularly if there are debts that must be paid. Although you and your former spouse may have agreed to pay the debt together, if that arrangement falls through, it will remain on both of your reports and ultimately affect how well-known you appear to potential lenders.
To protect yourself financially during a divorce settlement, it’s best to close all joint accounts you have with your ex. Not only will this protect your credit, but it will also stop any financial commingling as you work through the details of the agreement.
Additionally, make sure any new debts you incur are in your name only. To do this, contact your creditors and request they transfer the debts to you.
Once your credit has been established, you can begin working to rebuild it. This may take some time, but every step forward will help. Eventually, you’ll be able to open a credit card in your name alone and build up an impressive credit history.
Establish Your Own Credit History
Good credit is necessary for many financial tasks, such as applying for a mortgage or renting an apartment. Not only will it save you thousands in interest on loans, but it may also boost your employment prospects by improving access to employment opportunities.
Divorce can have a devastating impact on your credit, but it doesn’t have to be permanent. With responsible budgeting and timely payments, your credit should begin to improve over time.
Establishing your own credit history with a credit card in your name is the best way to begin building it. If you’ve never had one before, look into getting one with a secured line backed by cash deposits or ask an established user with good credit to add you as an authorized user on their cards.
Establishing your credit from zero can take at least six months, but using that time wisely will provide a strong foundation for future credit success.
Get a New Credit Card
Credit cards are a common way for divorcing couples to finance their post-divorce transition. They can also serve as an excellent opportunity for those without prior credit history to build credit.
However, if your ex-spouse was using your credit cards, it’s essential to create a new credit history in your own name. Doing this will help boost your credit score and shield you from any negative impacts from their actions.
One of the fastest ways to rebuild your credit is by paying off debt that both of you shared, such as a mortgage or credit card. Doing this will reduce your total debt load – an important factor in determining your credit score.
Rebuilding your credit is another essential element, so make sure not to overuse available funds, as this could negatively impact your score. In general, try not to use more than 30% of available credit at once.
Apply for a Loan
If you’re transitioning into a new home or returning to the workforce after divorce, it can be challenging to rebuild your credit. While the effects of divorce on your credit score are typically temporary, repairs may take some time.
Credit agencies prefer borrowers with a low debt ratio (the amount owed compared to available credit). Paying off existing debt and keeping your balances low can help improve your credit rating.
Maintaining timely payments is essential, even if you are facing financial difficulty. On-time payments make up 35% of your credit score.
Divorce can leave you short on cash, so it’s essential to maintain control of your spending. Avoid using joint credit cards or taking out a loan if you cannot afford the monthly payments.