PROTECT YOUR CREDIT WHEN LIFE HAPPENS
No one ever gets married with the intention of a divorce in their future. Unfortunately, if the current trends continue there is a possibility that 40-50% of marriages will end in divorce. That is a staggering statistic that is difficult to face. According to Divorce Rate 41% of 1st marriages could end in divorce in comparison to 60% of second and 73% of third marriages.
Divorce causes a major time of upheaval for those involved, but the one thing that should not be effected is the credit you have worked so hard to build. For many those the experience is very much the opposite with unfulfilled promises to pay, maxing out credit cards and a complete breakdown in communication leads to the destruction of at least one spouse's credit.
Taking a proactive approach and creating a plan to sustain the credit of both spouses will ensure that the "starting from scratch" will not include rebuilding credit. To start this process both parties should obtain all copies of their credit reports: Equifax, Experian and TransUnion.
Than, create a spreadsheet and list all accounts that are currently open with the following fields:
- Creditor Name
- Contact Number
- Account Number
- Type of Account (credit card, car loan, mortgage, ect.)
- Account Status (current, past due)
- Account Balance
- Minimum Payment
- Who is vested (joint, individual, authorized signer)
Once this information is gathered you create a plan. Secured assets (anything with an asset attached to it, car loan, mortgage, ect) is best to sell or refinance into once spouses name. In other words, one spouses buys out the other if that spouses is able to qualify for the debt on their own. If you keep your name on these debts with the other spouse tending to pay them you are putting your self at the risk of having to make the payments your self or let your credit go down the drain. (Make sure to keep your name on title to anything you have your name on.)
Unsecured accounts should be handled quickly. It is important to know which spouse is vested (if not both). If one is a signer it is easy to remove the name from the account. If an account is joint (both of you are vested) without a balance on this account and close it immediately. If there is a balance it is best to freeze these accounts. (If you do not have a credit card in your own name it is best to get one before freezing these accounts, you can than transfer your part of the balance over and ensure payments are being made.)
It is paramount to make sure that any debt with your name on it is being paid on time to preserve your credit. One 30-day late payment can drop a credit score as much as 75 points. Additionally, a divorce decree does not override your responsibility to a creditor, so regardless of who the judge orders to pay the debt it can/will still effect your credit if it is not paid timely. The key is not only to eliminate joint accounts, but do it as soon as possible.
Divorce is difficult for all parties, but by taking these precausions you can ensure your credit remains strong.
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