Untying the Knot
Deciding to part ways can be an overwhelming time. Whether you're considering a separation or filing for divorce, it's important that you give your credit special attention. Your credit rating can have a significant impact on your ability to start this new chapter of life with the resources you need.
Firstly, it's important to understand the differences between joint and individual credit accounts:
- Joint Accounts- If you have joint accounts, then both you and your spouse are responsible for the debt. Simply agreeing that one person will take over certain payments doesn't change that. Additionally, a divorce agreement that outlines who is responsible for which debts won't release either spouse from responsibility for joint accounts. As far as the creditor is concerned, it granted credit to both of you and you are both responsible for paying the debt.
- Individual Accounts- These are accounts in your name only. As long as your spouse isn't an authorized user on the card, this is your private account. Especially as you go through a major life transition, it's important to make sure you keep your balances reasonable and pay every payment on time. If you find it difficult to make the minimum payment on one income, contact your creditor immediately and explain the circumstances. Often, creditors are willing to work with you as you make a life transition.
Additionally, divorces can take several months, so it's a good idea to use that time to make sure your credit is in the best shape possible. Here are some tips:
- Make sure you continue making all payments on time so neither spouse's credit rating suffers. This often requires good communication, which can be tough at this difficult time but is worth it in the long run.
- Know where your credit stands. Check your credit report and ask your spouse to do the same. Since information on your credit files can differ, it's a good idea to check your Experian, Equifax and TransUnion files.
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- Consider closing joint accounts or accounts for which either spouse is an authorized user. By closing the account, even if you continue paying down the balance, you ensure that neither spouse can add charges to the account.
It's important to note that creditors can't close joint accounts because of a change in marital status, but can do so if asked. However, that account does not necessarily become an individual account. The creditor can require you to reapply for credit as an individual, and determine whether to extend you credit based on your new application. In the case of a mortgage, lenders usually require that your refinance in order to release a spouse from responsibility.
- If you make less money that than your spouse or aren't employed outside the home, consider applying for a joint credit card before the divorce is final. This will help you start building a solid credit history before you're on your own.
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