Does divorce affect your credit score?

 Quick insights

There are some logistics to consider while going through a divorce. One of them is separating the finances.

While getting a divorce doesn’t directly hurt your credit score, it’s common for people to find themselves in trouble with their credit after a divorce because many of the financial dynamics that you're used to may change drastically.

You may find yourself figuring out how to pay bills with less money than you had with combined incomes, managing debt that was previously shared and possibly taking on new loans such as a mortgage or auto loan. These changes could indirectly impact your credit score for a period of time.

There are ways to help rebuild your credit and feel empowered to plan out a positive financial future for yourself.

How divorce affects credit for both parties

Here are a few ways that divorce can affect the credit of both spouses.

Changing income

Following a divorce, you’re likely facing a change in income. You may be going from two incomes to one, and adjusting to making alimony, child support or other payments that you didn’t have before. This change in monthly income may affect your ability to make payments on time and in full for a period of time.

Missing payments on joint debt

Joint accounts are reported on both spouses’ credit reports, so if one person defaults, the other will be affected. This includes credit cards, mortgages and any installment loans. Whether bills get paid or not, those joint accounts stay on your credit report.

There’s also the possibility of new debt being added by one or both spouses without the other one’s knowledge.

Closing joint credit cards

When you close a joint credit card, your credit utilization ratio may increase. Credit utilization is the percentage of your total available credit that is being used at any given time. If you close one credit card, you lose that available credit. Assuming you still have other cards open with balances, your amount of available credit decreases. Therefore, your credit utilization increases. Keeping a ratio of 30% or lower may help to maintain a good credit score.

Creditors and debt collectors don't honor divorce decrees

At the end of your divorce proceeding, the judge will issue a divorce decree. This is a judgment that sets the terms of community property shares and debt responsibility, along with orders for alimony or child support. Your creditors are not obligated to honor divorce decrees.

How do I protect my credit score amid a divorce?

The best first steps to ensure that you have good credit after divorce is to pay off and close all joint accounts. Additionally, if your ex-spouse is an authorized user on any credit cards, you—as the primary user—may remove them from the account.

You may also want to consider freezing your credit report, which prevents anyone from opening a new account in your name. A freeze also prevents credit bureaus from sharing your credit report with any third parties, such as new lenders. This may give you an opportunity to get your finances in order before taking on any new loans or credit cards. When freezing your credit, be sure to do so with all three major credit bureaus: Experian™Opens overlay, Equifax^®Opens overlay and Transunion^®Opens overlay.

4 tips to rebuild your credit score after a divorce

1. Resolve joint debts and pay them off

Ideally, you and your ex-spouse can figure out how to divide up the debt that was built while you shared a joint account. Monthly payments that were affordable when you had two incomes may become harder to do on your own. Late or unpaid payments could impact your ability to get approved for credit cards, loans or mortgages in the future. Dividing up this debt could be helpful to each spouse so that neither of you takes on enough debt to damage your credit score.

2. Monitor your credit report

It’s a good idea to monitor your credit report and credit score often, so you know exactly what you’re financially responsible for, according to lenders. You can also review your report for errors. Remember, the primary account holder named on the account is responsible for the bill regardless of who actually spent that money.

If you’d like help monitoring your credit, you can sign up for Chase Credit Journey^®—a free resource to help you through the process of managing your credit.

3. Keep credit utilization ratio low

While your finances are in flux, try to avoid maxing out your credit line. You may also want to get your credit utilization ratio to under 30%. This means only spending 30% of your total credit. For example, if you have a credit card with a limit of $10,000, aim to spend no more than $3,000 on that card within any monthly billing cycle.

4. Start to build a credit history of your own

You can work to establish a credit history of your own by applying for a credit card in your name, making small purchases each month and paying them off in full. Establishing a history of consistent payments can increase your credit score over time.

Let’s say you’ve only been an authorized user on your ex-spouse’s credit cards and don’t have credit cards or loans in your own name. Once you’re removed as an authorized user, your credit score may be negatively affected.

In conclusion

Although divorce is a life event that can impact your finances significantly, it doesn’t automatically hurt your credit score. There are more indirect ways that divorce may affect your credit, such as closing joint accounts. Taking on debt that was once shared and adjusting to a new budget may impact your credit, depending on the situation.