If you are planning to get a divorce or possibly even filed it already, then read on. Getting divorced has more implications than you can possibly imagine, particularly for your collective finances, and can severely affect your credit reports.

In the technical sense, divorce proceedings for any couple will not directly affect your individual credit reports. The credit commitments you have made together however can have a very negative impact on your credit score. These include joint accounts, credit cards shared with a spouse, loan accounts made as a married couple or even endorsing one for the other. These financial records are all provided to the credit reporting agencies and will both reflect on both spouse’s credit reports. 

Let’s elaborate the account types and what you must do before your divorce gets finalized, so that it would be easy for you to understand and do the needful to avoid possible negative consequences. 

Account types
In a “joint” account, the spouses are equally responsible to make the payment of the due bills. Where as in a “co-signed” or “endorsed” account, only one person is responsible for making the payments, however, if he/she fails to pay the due amount, ‘the co-signer’ or ‘the endorser’ is liable to make the due payments.

An “authorized user” is the one who has a permission to use the card but is not the one who is responsible for making the due payments. “Individual accounts” are the one which are registered only on single person’s name and are not shared with the spouse in any manner and these accounts does not have any negative impact of divorce. Indeed, if you want to be an independent and wholly responsible for your credit then you must not have any shared accounts with your spouse. However, doing this can be a problem while purchasing a home.

Close accounts
Before your divorce gets finalized, you must either shut down your joint account or the other person’s name should be removed from the account. As according to law the financial institutions or creditors cannot close an account because of divorce, however, you can always apply for it manually. Then the creditors will change the joint accounts into individual accounts but may require you to re-apply and extend credit exclusively based on your own credit scores or if it is a mortgage or home equity loan, refinancing of the loan might be required. 

If accounts aren’t closed or changed from joint to individual, a divorce decree may state who is liable for the accounts opened during the entire marriage. However, just because the court’s order states a person liable for, the ruling doesn’t change the lender’s agreement which still lists both husband and wife as responsible. In these circumstances, if the person liable to make the payments and for any reason he/she fails to do so, the credit score report will reflect the late payments and all this harms the credit score of a person who is not even liable for making the payments. 

Moreover, the person who is not liable for the joint accounts anymore keeps the card and can easily buy new things with it, which can eventually make the situation very messy, as in most of the cases it has been found that in these types of situation the responsible person never wants to pay the due amount. But as mentioned before, the creditor will come after both the parties. Apart from this, there is even a greater risk involved in authorized user accounts, as according to law the authorized person cannot be held accountable at all.

Want to keep your credit score high? Avoid overspending and check credit report regularly for happy financial life. To keep your credit score high, it is important to keep a track on the 3 bureau credit report regularly.