Your Credit Score During Divorce:
By Elizabeth Cox
RACHEL is the sort of person who plays by the rules. A stay-at-home
mother of three, she has always lived within the family budget
and paid bills on time. When she and her husband, Jack, split
up, she followed her obligations under their divorce decree
to the letter. She was therefore shocked to find out that her
mortgage application after divorce had been turned down because
her husband had destroyed her credit rating.
"He'd always paid our mortgage on time during our marriage,"
Rachel says. "So when the court ordered him to keep up
payments until we sold our marital home, I didn't think anything
of it. Besides," she adds, "I couldn't have made those
payments myself during our divorce proceedings. He was the one
earning the salary. Where was I supposed to get the money from?"
It is important for divorcing couples to understand early on
that if they have joint debt, their credit ratings are inextricably
linked until they separate their obligations. Therefore it is
in their mutual self-interest to make payments on time. A bad
credit score makes it difficult for both parties to move on.
The time to act is before there has been a missed payment. Divorce
is stressful and can sometimes lead to erratic financial behavior
on the part of a spouse. It is therefore advisable for divorcing
persons to take control of payments that affect their credit
rating as soon as possible.
Remember, court orders aren't
Most divorcing couples believe that a divorce decree can relieve
a spouse of a joint financial obligation. Not true! Court orders
and divorce decrees can't save divorcing couples from financial
peril if one or both spouses act irresponsibly. "People
have a naive expectation toward court orders, like they're magic,"
says Barbara Stark, divorce lawyer and principal of Divorce
Resolutions Resources. "But court orders are not magic.
People have to learn to take responsibility for their own finances
and their own lives. The sooner they learn this, the more quickly
they'll be able to limit the damage [to their credit rating]."
David Cross, mortgage broker at Landmark Financial LLC agrees
with Stark's assessment that court orders can't do much to protect
a divorcing couple's credit rating. This is because when a married
couple signs a joint loan application, both spouses make a legal
agreement with the creditor to pay back the debt. A court cannot
overturn this contract (unless it is unlawful for some other
reason). An amendment to any contract requires the agreement
of all parties, including the creditor. In Rachel's case, her
ex-spouse stopped making mortgage payments and Rachel's credit
score plummeted. "The only way to get her name off the
mortgage note was to pay it off or refinance," Cross explains.
In certain circumstances a divorce decree can help a mortgage
broker "explain" a borrower's, like Rachel'serratic
payment history to a mortgage lender. But Cross warns that this
process, which requires the borrower to submit a letter of explanation
and the lender to customize its underwriting, doesn't always
work. "It's possible to get an exception but difficult,"
Why credit bureaus will disregard
your divorce decree
Credit scores matter because they measure for businesses what
sort of a credit risk you are. According to Cross, they are
"the driving force" in determining how much you will
pay for a loan. The higher your risk (i.e., the lower your score),
the more money you will pay to borrow — whether for a
mortgage, auto loan, or credit card.
The most widely recognized credit score is FICO, computed by
Fair Isaac & Co. In the U.S., your FICO score is based on
financial information tracked by three major credit bureaus:
Equifax, Experion, and Trans Union. (For a free credit report
from these agencies, go to www.annualcreditreport.com). In Canada,
the three major credit bureaus are Equifax Canada, NCB Inc.
and TransUnion Canada. (Visit www.canadian-creditreport.com
for a free credit report.)
FICO takes into account a lot of different credit information
in determining your score; more than half of the calculation
comes from your payment history and the amounts you owe. So
if your mortgage payment or other loan is past due because your
spouse has failed to make a court-ordered payment, this will
still have a direct impact on your FICO score.
How to protect your all-important
credit score during divorce
Regardless of what your divorce decree says or what's fair,
if you have a joint debt, you're responsible for it. So it's
important to take the following steps to protect your score:
Identify all joint accounts.
A good way to do this is to get your credit report from each
major credit bureau: Experian Trans Union, and Equifax. These
reports will show open department store credit cards that you
might not have used in years. If you're not sure whether your
spouse is authorized to use a particular card, check with the
If possible, close all joint accounts immediately. This is
easy to do if there is no outstanding debt. If, however, you
owe something on the account and can't close it, freeze it so
that no one can continue to use it. Then transfer the joint
debt from joint name to sole name. This has to be done equitably.
Make sure to make at least the minimum payments on joint credit
card bills while you are in the process of closing/freezing
joint accounts. Even one late payment can affect your FICO score.
If you don't have a credit card in your own name, now is the
time to get one. Building your own credit history takes time,
so it's best to get started.
In the case of a joint mortgage (secured debt), your best options
are either to sell the marital home and pay off the mortgage
(cleanest choice), or to refinance the mortgage in the sole
name of the person responsible for paying it. If you decide
to refinance, make sure to do so before the divorce is final.
Sometimes one spouse won't qualify for refinancing on his/her
own; it's best to know this upfront.
While you're waiting either to sell your home or refinance
it, make sure your mortgage payments are current — even
if it is your spouse's responsibility and you have to borrow
from friends/family to do so. Remember that missed payments
affect your credit rating, too. According to Stark, a client
in Rachel's situation would have been better off making the
mortgage payments herself and then having Jack reimburse her
under court order if necessary. "The only way to protect
your credit rating is to make payments yourself," Stark
Make sure not to take your name off the title if your name
is still on the loan. This will only remove your name from ownership
— not from your obligation to pay off the debt.
If only I'd known….
It's been two years since Rachel's divorce and she is still
repairing her credit score. Jack's failure to pay the mortgage
will stay on her credit report for up to seven years. Fortunately,
her prompt payment of bills in her own name since her divorce
has caused her FICO score to improve enough that she can now
get a mortgage — albeit at a higher rate. "If only
I'd known how credit scores worked before my divorce was final,
I would have done things differently," Rachel said. "I
would have saved a lot of money."