|Marriage, Divorce, and Credit
Thinking about getting married… or on your way to a divorce? It's a good idea to first understand how both marriage can affect credit and how divorce can affect credit -- both joint credit and individual credit.
Joint Credit Implications of Marriage
If you plan to change your name when getting married, ensure that your existing creditors are updated about your new name so that your credit history doesn't get interrupted. You will also want to list your maiden name as an alias on any future new credit applications, again to ensure that your full credit history is represented.
Joint Credit vs. Individual Credit Accounts
When applying for credit (such as a mortgage or credit card), you'll need to choose between an individual and joint credit accounts.
If applying for an individual credit account, your own income, assets, and credit history will be considered. Whether you are single or married, you and you alone are wholly responsible for the debt. Note, however, that not only will the account appear on your own credit report, it may also appear on the credit report of anyone else you appoint as an "authorized user" of your account (typically a spouse). Also worth mentioning is that in some cases, one spouse's individual debts may appear on the credit report of the other.
Pros and cons: On the upside, you are in control; no one else can have a negative impact on your credit record. On the downside, if you have trouble qualifying for credit on your own (such as if you do not work outside the home, work only part time, or have a low-paying job), you may need to include your spouse's income just to get credit.
Conversely, joint credit accounts take into consideration both spouses' financial assets, income and credit history together. Together you are accountable for the credit and payments. As you might expect, joint accounts will appear on both of your credit reports.
Pros and cons: The biggest benefit here is that together, your financial picture may be much stronger in helping you obtain credit than if you were to apply individually. On the downside, however, you have less individual control as you are both responsible for the debt, even if you divorce and separate debt obligations are assigned to each spouse. A worst-case scenario is that a resentful ex-spouse has the potential to seriously jeopardize your credit history through these jointly-held accounts.
Credit Implications of Divorce
Credit difficulties as a result of divorce are fairly commonplace. What can you do to protect your credit if you find yourself in this position?
- Notify credit report agencies when you legally separate or divorce. Ensure that you get a copy of your credit report at the time that this is done. Your motive here is to protect the integrity of your credit report.
- Changing your name? Notify your creditors. This is similar to changing your name when you get married, as outlined above. If you're changing your name when getting divorced, ensure that your existing creditors are updated about your new name so that your credit history doesn't get interrupted. You will also want to list your married name as an alias on any future new credit applications, again to ensure that your full credit history is represented.
- Close all joint accounts where possible, and pay off current balances if you can. Sometimes creditors will convert joint accounts to individual accounts as well; in other cases, you will have to close accounts and re-apply as an individual. For mortgages, a lender is likely to require refinancing to remove an ex-spouse from the obligation.
- Maintain regular payments. If joint accounts are maintained, ensure that you continue to make regular payments during the period between separation and the finalization of your divorce so that your credit record will not suffer. Always remember that so long as there is an outstanding balance on a joint account, both you and your soon-to-be-ex-spouse are responsible for it. Keep careful watch of your mail, too, since a bitter ex might try to intercept pre-approved credit applications.
- Talk to a lawyer. Where possible, work out arrangements with your ex-spouse about debt payments even before you finalize your divorce.
While no one wants to think about divorce, it's good to know both how divorce affects credit and how marriage affects credit ahead of time, before you entangle yourself in joint credit.
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