An all-too-common story we hear from clients across the United States is how a divorce absolutely ruined their credit or the credit of someone they know. Most folks wouldn't anticipate something like this happening as an outcome of the divorce because it is simply unfamiliar territory to them. They are learning as they go through the process along the way.
Instead of going through the headache of how to fix your credit after a divorce, consider these strategies to be proactive with your finances.
Watch the video above from My Credit Guy’s CEO, Sam Parker, on the best strategies to avoid bad credit after a divorce.
How Does Divorce Affect Credit?
One can't assume that because the divorce court ordered their ex to pay on specific accounts that they are completely out of the woods. Unfortunately, these folks learn the hard way that what the divorce courts rule only extends only so far.
The bottom line is this: divorce decrees do not supersede pre-existing contracts and obligations with your lenders. In layman’s terms, just because the court orders one of the parties to pay a debt obligation, it doesn’t release the other spouse from liability on the account if it was originally opened as a co-signed account or joint account. Each party is still as equally liable as when the account was opened, even if the divorce court mandated that Spouse A pay the bill.
Because each party is still held liable in the eyes of the bank, it's also highly likely that the account is being reported to each person's credit. The ramifications of these delinquent accounts could lead to years of credit issues.
So what types of things can be done to avoid these potential financial barriers? Watch the video above or read more to learn the key takeaways that could save you or someone you know a lot of stress, surprises, and financial headaches down the road.
How To Fix Your Credit After Divorce
Here’s the scenario: a divorce court ruled that your spouse is responsible for your existing home mortgage. A few months later, you realize your spouse has not been making any of these payments. According to the divorce court, you should be off the hook, right?
Wrong. Again, because pre-existing contracts trump divorce court orders, you are still responsible if you were a co-signer for your house. So, your ex spouse’s late payments could lead to a late statement or even foreclosure on your credit.
Luckily, there’s a solution. You can go to your original lender and make them refinance the note. This is the only way to completely remove yourself from the liability. Be proactive about this so you don’t have to go through the hassle of bad credit you could have prevented.
Keep in mind that divorce courts only have legal jurisdiction over recognized marriages — if you break up with a long-term significant other, forget about it. In this scenario, you will need to be especially proactive about getting removed from any financial agreement you’ve had with that person.
Get Help From a Credit Restoration Agency
If you or someone you know is going through a divorce, consider seeking help from a credit restoration agency. It’s better to have an expert opinion than to take the risk of bad credit.
Credit restoration agencies can also help with a host of other credit scenarios. Do you have questions concerning items on your credit report? Are you a lender that can't get the loan done until your client gets their credit profile cleaned up along with a midscore increase?
Contact My Credit Guy today for a non-obligatory, free review and we'll be able to guide you through the process with a personalized game plan on how to get back on track!