Attorney
In theory, getting divorced should not impact your credit because your relationship status is not part of your credit score. But the reality is most people in the Albuquerque area see their credit scores drop, and their access to capital tighten, when they begin to cut ties with their partner.
Fortunately, there are steps you can take to rebuild your credit. And it all begins with hiring a seasoned attorney like Bob Matteucci to guide you through all the unexpected financial aspects of divorce. Below are eight things Bob has helped his clients do to turn things around when their creditworthiness is questioned.
1. Assess Your Credit Situation
Start by pulling your credit reports from all three major bureaus (Equifax, Experian, and TransUnion). Review them for joint accounts, errors, or any signs of identity theft. A clear understanding of your financial position is the foundation for rebuilding your credit.
2. Separate and Close Joint Accounts
Joint accounts can be a major liability post-divorce if your former spouse misses payments or is otherwise financially irresponsible.
As part of your divorce, you should craft a plan for how jointly owned accounts, assets, and debts will be divided up, closed, transferred, or retitled. Then implement this plan. Accounts are still jointly owned in the eyes of your lenders if you don’t take the steps necessary to shift ownership of them.
3. Establish Credit in Your Own Name
If most of your credit history is tied to joint accounts, start building credit independently. The quickest way to do this is to open a credit card in your name. Use it responsibly and pay it off in full each month.
Once you have set up your new accounts, you may want to consider contacting the three major credit bureaus and asking them to freeze your credit reports. A credit report freeze blocks most people and institutions from pulling your credit report to check your credit score. This can prevent identity thieves — including former spouses — from setting up new accounts in your name because most lenders will run a credit check before extending someone’s credit.
4. Prioritize Debt Repayment
If your divorce settlement left you with lingering debts, create a repayment plan you can stick to. Making consistent payments should improve your score.
However, be aware that paying off debt can actually drop your credit score. It’s counter-intuitive, but the credit bureaus justify the move by claiming that they cannot tell if you make payments on time if you are no longer making any.
5. Automate Payments and Keep Utilization Low
Payment history and credit utilization significantly impact your credit score. Set up automatic payments for your bills to avoid missed due dates. Keep your credit utilization below 30%—ideally under 10%—to improve your score quickly.
6. Build an Emergency Fund
Financial independence post-divorce means being prepared for unexpected expenses. An emergency fund protects your credit by making sure you don’t have to resort to high-interest debt when something bad happens.
7. Leverage Business Credit
If you own a business, consider using business credit instead of personal credit whenever possible. Separating business and personal finances may strengthen your personal credit profile.
8. Monitor and Protect Your Credit
In addition to freezing your credit reports, you should also make a habit of checking your credit reports on a regular basis. Each of the three major reporting companies is required to provide you a free report once a year. And some banks provide constant access to one of the three as a perk.
This is also something you can automate or outsource to a credit monitoring service. Just be sure you are signing up with a reputable company and fully tapping into the benefits they provide.
Serving Families with Dignity & Compassion
Taking steps to rebuild your credit score after your divorce is one of those items on the post-divorce to-do list that seems to come out of nowhere. But being proactive about protecting and building your score is important.
If you need guidance on asset protection, business considerations, or financial recovery post-divorce, Attorney Bob Matteucci is here to help. Please contact him today to schedule a meeting.