8 ways to rebuild your credit after a divorce
By Allie Johnson
February 24, 2016
Divorce can break your heart, the bank and your credit. But after the split is final, you can start down the road to credit recovery.
While divorce doesn’t directly affect your credit, some actions you may take when getting divorced can hurt your score, says Vickie Adams, a certified financial planner specializing in divorce in Manhattan Beach, California.
Closing joint accounts that had been open for a long time can affect the age of your accounts and your credit utilization ratio, which can hurt your score. Applying for new credit in your own name results in credit inquiries, further affecting your score, Adams says.
For example, credit expert and attorney Stephen Lesavich says his score fell by more than 100 points during his divorce. “My credit took a huge hit,” he says.
But as you rebuild your life after divorce, you can do the same for your credit. Here’s a step-by-step guide to restoring your good credit after you and your spouse part ways:
1. Assess the damage. Look at your credit reports and your credit score to see where you stand, says Leasha West, a Michigan wealth strategist. Start by pulling your reports from all three major credit bureaus at AnnualCreditReport.com, says Shuntai Beaugard, a counselor in Flint, Michigan, who had to rebuild her credit after her 2008 divorce. You can check your reports for free once a year from each credit bureau.
“My credit took
a huge hit.”
— Stephen Lesavich,
credit expert and attorney
talking about his divorce
2. Downsize if necessary. When Beaugard got divorced, she thought she could afford to keep her house, but the mortgage and home repairs stretched her budget too far. She fell behind on payments and filed Chapter 13 bankruptcy, the type in which you repay your creditors according to a plan. Then she moved with her three sons into a two-bedroom apartment. “It was rough,” she says, but adds that she could have avoided bankruptcy if she had downsized sooner. “I was not being realistic,” she says.
3. Fix credit blemishes. Check for any incorrect negative items that are dragging down your credit score and address them as best you can, West says. In some cases, your ex’s information might show up on your credit report. For example, Beaugard had to dispute a $1,000 energy bill that her ex had racked up at his new place, she says. “I had to show proof it wasn’t mine,” she says.
4. Tie up loose ends. Make sure every account is in the correct person’s name. For example, if you moved and your ex stayed in the home, call service providers to get your name taken off all utility accounts, West says. That way, if your ex doesn’t pay his cable bill, and it gets sent to a collection agency, you won’t end up with a surprise ding on your credit. “Whoever’s name the bills are in, they’re responsible,” West says.
5. Pay down your debts. Divorce is expensive: You have to hire a divorce attorney, possibly shell out money for a deposit on a new home or apartment, and pay off your share of any debts you racked up as a couple. To repay more than $100,000 in debt, including $15,000 in credit card balances, Beaugard says she used the snowball method — paying off the smallest debt first, rolling that payment into the next debt and so on. “You have to chip away at the debt,” she says. Try to pay off your debt rather than seeking a settlement with a creditor, say offering a lump sum of $1,000 on a $1,500 debt, Adams says. That would show up on your credit reports as a debt that was settled rather than paid in full, and you may owe income taxes on the forgiven amount. “Settled is not as good as paid,” Adams says.
6. Ask about debt payment plans. If your divorce left you so deep in debt that you’re struggling to repay, prioritize what you owe, West says. If you’ve got medical bills and attorney fees due, try to negotiate payment plans where you pay just what you can afford, say $10 or $20, each month, she says. That will free up more money for you to pay off debts with less lenient creditors like credit card companies, she says. If you need help creating a budget, you can visit a nonprofit credit counseling agency, Adams says, such as those associated with the National Foundation for Credit Counseling or the Financial Counseling Association of America.
“I’m a big believe in secured credit cards. It’s an easy, quick way to build credit.”
— Vickie Adams, a certified financial planner
specializing in divorce
7. Use credit wisely. Ideally, you have credit cards in your own name that you can use responsibly, paying them in full each month, to help rebuild your credit. However, what if you had only joint cards that were closed in the divorce, and you can’t get a major credit card on your own? In that case, start with a store credit card, but resist the urge to use “retail therapy” to make yourself feel better, West says. “Pay it off every month and build your credit,” she says. If the temptation would be too great, a secured card might be a better option. “I’m a big believe in secured credit cards,” Adams says. “It’s an easy, quick way to build credit.” A secured card requires you to submit a deposit of a few hundred dollars, which acts as your credit line. Borrowing and repayment patterns from the card are sent to the credit bureaus to help rebuild your score.
8. Sign up for credit monitoring. In the aftermath of a divorce, it’s smart to sign up for a credit monitoring service to check for any problems that might surface, West says. Beaugard says she signed up for credit monitoring to assist her credit rebuilding progress. “It helped me a whole lot,” she says, adding that the alerts she received from the service were a “great reminder” to stay on top of her credit. Over the past two years, Beaugard finished her bankruptcy payment plan, boosted her credit score to over 700, and bought a house.
When you’re in the midst of a messy divorce that’s dragging down your score, it can seem like you’ll never get your good credit back, but that’s not the case, Adams says.
“I’m surprised by how quickly people are able to rebound,” she says.