How does divorce affect your credit score?

The short answer: It depends.

When thinking about your credit during divorce, it is important to first understand how lenders use your credit score. When you apply for any kind of credit, for example, a credit card, loan, or mortgage, lenders check one of the credit information bureaus, such as Experian, FICO, or Transunion, to review your credit score. The score tells potential lenders whether you are a low-risk or high-risk borrower and can also affect how much interest you will have to pay when you borrow. Credit scores range from a high of 800 to a low of 300. The higher your score, the easier it is for you to borrow money when needed.

The following chart breaks down how a FICO score is calculated:

Source: http://www.myfico.com/crediteducation/whatsinyourscore.aspx

As you can see, your marital status is NOT a consideration regarding your credit score. In fact, Experian, one of the largest providers of credit information, states, “Divorce proceedings don’t affect your credit report or credit scores directly.”

How divorce could hurt your credit score.

When you are going through divorce, you need to check your credit report. You will see all the accounts listed in your name and accounts held jointly with your spouse. You are responsible for any debt with your name on it regardless of whether you are married or divorced.

Let us consider a very simple example. You have a joint credit card account with your spouse, and you get divorced. For whatever reason, you do not change names on the account after the divorce. A few years later your now ex-spouse spends a few thousand dollars on the credit card and fails to pay the bill. Your credit score will be affected, which could hurt you, for example, if you try to apply for a mortgage.

You can protect your credit in divorce.

As soon as you start the divorce process, you need to view your credit report to see what accounts you have. Pay particular attention to any joint accounts you have with your soon-to-be ex-spouse.

Once the divorce is finalized, you MUST make sure your name is removed from any accounts you are no longer responsible for as part of the settlement, which could mean mortgages, credit cards, personal loans, or any kind of debt you may have. Be sure to follow up with every joint or marital account you have to avoid potentially disastrous consequences later.

It’s not all bad news.

Divorce could also benefit your credit. As part of the divorce settlement, your spouse may become solely responsible for any joint debts, and you are able to remove your name from joint debt accounts. This would lower your total debt in your new single life. With less debt, your score could increase.

Be sure to know what credit accounts you have and stay up-to-date on any changes as you go through divorce. It could have important consequences for your financial life long after the process is over.

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Shawn Leamon, MBA and Certified Divorce Financial Analyst, is the host of the Divorce and Your Money Show, the #1 show on iTunes that discusses personal finance issues in divorce. He is also author of Divorce and Your Money: The No-Nonsense Guide, available on Amazon. Learn more at www.divorceandyourmoney.com.

Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.