Divorce can be a nasty process and certain things can make it worse. Where you live can add to the stress surrounding legally separating from a spouse. If you are unlucky enough to be divorcing in Arkansas you can expect to wait at least 540 days to have your case processed.
Fortunately, many other states are more reasonable, and divorces in Tennessee take on average just 60 days to complete. Of course, not all divorces are amicable or processed as no-fault.
Two of the common reasons for spouses splitting up can be debt or financial distress. If you were in these circumstances then it would be natural to want to separate your financial assets and accounts from your spouses. But are you allowed to open new accounts, or take out a credit card during a divorce?
Does divorce affect your credit rating?
Your credit and debt details are recorded by the three big agencies, TransUnion, Equifax, and Experian. These agencies and the data they hold help to decide your credit score, This in turn is used by financial institutions when looking at applications for credit cards, mortgages, and loans.
Fortunately, divorce won’t directly affect your credit rating by itself. However, the family lawyers at GSRM.com point out that joint accounts held by you and your spouse can affect your credit rating in a divorce.
This is because credit was assigned to both of you. Even if a judge assigns responsibility to your spouse to make repayments, credit agencies only look at the names of the debtors.
What should you do with marital credit cards?
If you have any joint cards or accounts then you need to act. Open up your own bank account after notifying the court of your intention to do so, and close any joint credit cards. If you are worried your partner will spend excessively during the divorce or try to take out credit in your name then you can get a free credit freeze.
This is an anti-fraud measure and will help to protect you against debt, and a damaged credit rating. One study showed that 38% of respondents had their credit score lowered by 50 points during divorce.
Generally speaking, closing joint credit cards isn’t good for your credit rating. But, it removes the risk of one spouse making late payments or racking up debt that you are responsible for. You will both need to agree to these cards being closed though.
You should also get a credit report and see precisely what accounts are linked to you.
Can you apply for a credit card while you are going through a divorce?
Yes, and you probably should. After your divorce, it is important to build your credit score, and taking out a new card can help.
Obviously, you will need a good credit score to be able to successfully apply for a new card, which is why getting a credit report is a good idea. You can always get a lower-limit credit card to start with. If you make more than the minimum monthly payment and are always on time, you can raise your limit, and improve your credit score.
Maintaining your credit score, and building it up is vital when going through a divorce. You want to come out of the separation as financially stable, and independent as possible.
Will joint credit card balances and usage affect your future credit rating?
Hopefully, your spouse is reasonable and wants an amicable divorce. Unfortunately, many people act on emotions and can act erratically during a divorce.
Credit scores aren’t just affected by late or missed payments. The balance of a credit card and even how much it is used can have an impact too. If your spouse is using a joint credit card too often and building up debt, your rating will be affected too.
You can get loans even with bad credit. But, it is far better to have a healthy credit score so that you can apply for mortgages if needed and get lower car insurance in the future.
Are you responsible for the credit card debt racked up during the divorce?
In the majority of states, you and your spouse will be equally responsible for joint credit card debt. It doesn’t matter who used the card the most, or who made the most payments. The credit was extended to both spouses, therefore both are responsible.
This is why you should close joint accounts as quickly as possible during divorce, and take out your own credit card. Having control of your finances will limit the damage your spouse can do to your credit rating. There are things you can do if you need money now, and normally credit isn’t the best answer, but during a divorce having a new card solely in your name is an excellent idea.
Credit card debt during divorce can get complicated. In divorce, a judge can assign credit card debt to one spouse even if the debt is solely in the other spouse’s name. Therefore, you could end up being responsible for your spouse’s debt. Nevertheless, as far as the creditor is concerned, your spouse is solely liable for the remaining balance.
Normally though, the biggest concern is with separating debt. Joint credit card and bank accounts should be closed as soon as possible. You should open your own bank account to keep control of your salary and take out a new credit card. This will not only give you some independence but also help to improve your credit rating for the future.