How You Can Improve Your Credit Score Before Getting Divorced

How You Can Improve Your Credit Score Before Getting Divorced

This article was originally published in Divorce Magazine.

To keep divorce from destroying you financially, you should prepare in advance to protect yourself. One important step is to ensure that you have good credit before you get divorced, which can be invaluable both as you pay for the expenses associated with divorce and when you’re moving on with your new life.

Before a divorce, it is imperative to establish credit in your own name. Without credit, it will be difficult to apply for essential items, such as a mortgage for a house, auto loan for a car, and credit cards for everyday expenses. Landlords typically review a candidate’s credit history before considering you when renting an apartment.

You can build your credit in several ways before getting divorced.

1) Maintain a credit card in your own name while still married. For example, open a credit card and make even a small purchase every month or two to keep the account active. By consistently paying the bill on time, you will begin to establish your own credit. A married couple often has joint credit. This type of credit is issued to the couple based on their collective incomes and assets. When property, car installments, and credit card accounts are jointly owned, the individual’s credit history will affect his or her spouse’s credit history. With an individual credit account, you are solely responsible for the charges made and for paying the balance. As a result, your own credit history begins to form without having a spouse’s history involved.

2) Take on your own installment loan, such as an auto loan. By paying your monthly car note, you will establish credit in your own name and build your credit score. As a first-time borrower with no credit history, you will most likely pay a premium interest rate for your first auto loan, but keep in mind that by paying your monthly note on time for one to two years, you may be able to refinance at a lower interest rate down the road. You can also opt for a lower monthly car payment and make additional payments or a double payment when you have extra cash. It is in your best interest to put the dream car aside, be practical, and purchase a vehicle you know you can afford. By paying off your loan early, you will save money on interest and boost your credit score.

3) Open your own bank account. Lenders view a bank account as a sign of stability. Accordingly, they are more apt to approve your credit card application, automobile installment, mortgage loan, or apartment lease if you have your own account. In the eyes of the lender, a savings account means you are a good credit risk. Although checking account transactions, such as depositing funds, withdrawing money, and writing checks, don’t directly affect your credit score, signing up for overdraft protection can. Many are unaware that overdraft protection is essentially a line of credit. It can land on your credit report as a revolving account and negatively affect your credit score. Be sure to apply for a checking account with free overdraft protection or one that simply conducts a soft inquiry, which will not adversely impact your credit score.

Establishing your own personal credit before a divorce will only help ease the financial stress that frequently occurs at this time. By using a credit card wisely, purchasing a vehicle with a car loan you can afford, and opening a bank account, you will begin to create credit for yourself. Although divorce is never easy, if you are proactively building yourself up financially, you will move ahead independently with greater ease, less frustration, and reduced emotional strain.

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.