When Tammye's husband walked out with the money and credit cards, the financial life for the stay-at-home mom quickly became an urgent priority. With no steady income of her own, a husband who didn't want to pay the bills any longer, and few financial accounts in her name, Tammye (who asked that her last name not be used) was able to pull from a background of sound financial education and training as an accountant to keep her credit score high.
But she had to be proactive. And Tammye says she was fortunate to have an attorney friend warn her that more often than not divorce ruins credit scores, wreaking havoc on people's abilities to buy or rent a home, keep interest costs at a minimum, find the best insurance rates, or even find a job. As mortgage advisor, certified life coach, and author Patti Handy says, "After all, your credit score is your report card to the world."
Not everyone facing a divorce has the sort of financial savvy and education as Tammye. But if you are the non-primary wage earner in the midst of a split, keep these tips in mind in order to protect your credit score and your chance for a fresh start bright.
Establish New Credit
One important step to protecting your credit score in a divorce is establishing new accounts and closing joint ones. This will mean that your credit score will begin reflecting your own personal handling of credit and bills. According to Patti Handy,
"The tricky part is when you close a bunch of credit cards, your credit score will likley go down initially because you now have less credit available to you because you've closed those accounts, but it's a temporary dip. And if you reestablish credit, that will pop back up."
Here's some simple steps that will hopefully have a positive impact on your credit score (a similar process is used to rebuild credit after bankruptcy):
- Pull your three credit reports from AnnualCreditReport.com (from each of the 3 credit bureaus) and read every line so you know every account held in your name and whether you are a joint holder or what's known as an authorized user.
- Unfortunately, in some situations, a spouse may have opened an account with your name as a joint or authorized user and is allowing someone else access to that account. Since it's your credit score that will be impacted by how your spouse or anybody else uses the account, make sure you close it.
- Get organized, especially if you haven't been the primary money manager in the relationship. Patti Handy recommends creating a spreadsheet listing all institutions, account numbers, and dollar amounts for everything from investments to assets to debts.
- Call all credit card companies and banks where you have joint accounts and let them know there is a pending divorce.
- Open a new checking account in your name.
- Ask current credit card companies if they will issue you a new credit card in your name alone.
- Or apply with new credit card companies, being careful not to apply for more than one or two cards at a time because too many applications can also negatively impact your score. Secured credit cards are a great way to build or rebuild credit.
- Close joint accounts and have your name removed as an authorized user. In more difficult cases, your lawyer may be able to issue a letter to credit card companies to have your name removed.
Keep Paying the Bills on Time
First things first, pay those bills on time. Patti Handy reminds people that even one 30-day late payment on a credit card will send credit scores plummeting. And one late mortgage payment? If you're hoping to buy a new house after a divorce, just one late payment could make it very difficult.
James Tripcony, a divorce and family law attorney in Arkansas and founding partner of Tripcony, May & Associates, offers the following list of priorities for paying the bills held solely in your name:
- Credit card and installment loan debts, including a mortgage and car loan
- Apartment or house lease payments
After those bills are paid, you may still have some money left. For the accounts that are jointly held but your spouse may be refusing to pay, Tripcony offers this list of repayment priorities:
- Vehicle you need to use
- Home mortgage or rent for needed lodging
- Credit card and installment loans
Tripcony also advises if the money just isn't there either through a new job or spousal support, you may be allowed to borrow from a retirement plan, such as a 401(K). Some people in need also seek the help of family and friends.
Another suggestion that worked for Tammye to pay several utility bills was calling the company, explaining the family crisis, and asking for a one-month extension. Not all companies will allow it (and it helps if you and your spouse have a high credit score to begin with) but it's worth asking to avoid late payments and a hit on your credit score.
Find a Lawyer You Trust
Tripcony says to make sure to find a lawyer who specializes in family law, also known as matrimonial law or domestic relations law. A good family law attorney will know the best way to protect you and your financial health. Also key is not letting the inevitable and sometimes-overwhelming emotions involved with a divorce drown out your lawyer's voice. Tammye says at times she just had to trust her lawyer had her best interests in mind. So, if he said to pay a certain bill, then she paid the bill; and if she didn't understand why, she kept the lines of communication open and asked for an explanation.
A good lawyer can also help when finances are especially tight. When Tammye's husband stopped paying utilities and other bills, her lawyer was able to schedule an emergency hearing with a judge who ordered Tammye's ex to continue paying the bills for a set period of time. This gave her time to search for a job, and protected her credit score from being hit by late payments and the stain of collections.
Get money savvy! Get empowered!
Knowing how to handle money and credit scores is very empowering as you move through and beyond a divorce. So if you weren't the money person in your marriage it's time to start educating yourself. Patti Handy encourages people to "reach out, get help, understand credit scores, understand credit cards and how they work, understand how to invest money and who to talk to. Gather information, read, talk to people, get educated. That becomes a very empowering place!" A good place to start is Handy's website DivorceSurvivalTips.com.
Spending and Emotions
Last, but certainly not least, divorce can be emotionally devastating, and it's important to take care of yourself and those emotions. But it's also important to take a careful look at how you are taking care of yourself. The euphoria from buying something new when you're not feeling your best is undeniably powerful. But Handy reminds that "retail therapy backfires on us because we're racking up credit card debt or going through our savings account - both of which are dangerous."
Ask, "Why do I want to buy this? Will I be worse off financially?" Handy recommends waiting 3 days before purchasing anything or even calling a friend before making an impulse buy. Sometimes it takes only five minutes for the exhilaration to subside and pass, though the debt can last for months or years. Instead, realize that taking care of yourself means making smart choices that won't devastate your ability to begin afresh.
Good luck! Going through a divorce can be incredibly hard (I got divorced many years ago and it is the hardest thing I've personally ever dealt with), but it doesn't have to be financially devastating. You will be in my thoughts and prayers...
- Co written by Amy Arnold and Curtis Arnold, a nationally recognized consumer advocate, who is the founder of BestPrepaidDebitCards.com, which provides ratings of prepaid cards and secured credit cards. Curtis also founded CardRatings.com almost 20 years ago.