There have been very few instances that I have seen spouses handle finances on an equal basis during my time as a family law attorney. Usually, one spouse takes the lead on investing, saving for the kids' college, and getting the bills paid each month. How it works out from the attorney's perspective is that the client either has all of the access to financial information and can answer all of my questions about money, or the client has no knowledge of the finances and has never been given any of the usernames or passwords to be able to access online financial accounts.
If you are going through a divorce, you should be prepared to begin life as a single person in charge of handling their finances. Whether through willful ignorance or a controlling spouse, you can no longer assume that your spouse is taking care of everything. It's time to get off the bench, grab a helmet and get in the game.
Today's blog post from the attorneys with the Law Office of Bryan Fagan, PLLC, will discuss the topic of how to care for your credit as a person going through a divorce. We'll note the importance of checking what is on the most important of credit documents- your credit report.
Verify that everything on your credit report is correct
Your credit report reflects the relationship you have had with debt, which you borrow from, what is left to be paid on each account, information on missed payments, the age of each account, and other personal information. You must pull your credit report and verify that the information contained in the report is correct. It would be a bad day for you to get to the end of your divorce only to find that someone has stolen your identity and opened up ten credit cards in your name. It will take you a long, long time to dispute those cards and can delay your divorce from completion.
Beyond your ability to be seen as creditworthy and trustworthy enough to be loaned money to, your credit score can determine your insurance premiums and whether or not you are even eligible to be extended insurance in the first place. Also, employers are pulling a copy of your credit report with greater frequency than ever, if only to see if your finances are in order before you are hired.
I may as well take a moment here to point out that just because you have an excellent credit score does not mean you are wealthy or in a solid financial position. Often it is the opposite. Your credit score (which is determined primarily based on what is contained in your credit report) tells you just how well you have paid payments on loans. The reality is that if you have paid your loans on time each month, you have also paid a ton in interest over the lifetime of that loan. This leaves you in the good graces of the credit reporting companies, but your actual pocketbook may not be as happy with you.
What to do if you spot an error on your credit report
When you review your credit report, you may see an error that needs to be addressed immediately. You should report those errors as soon as possible to the group that issued your credit report to file a dispute with the lender. If you file a dispute, the company must address that dispute within thirty days, or by law, the account must be removed from your credit report.
How to safeguard your credit
If you and your spouse opened any joint credit accounts (including credit cards) during your marriage, then you should close those accounts as soon as you can do so. Although this will keep any new charges assessed against the account, old balances do not go away. You and your spouse should pay that account off according to the terms of your Final Decree of Divorce. If your spouse fails to do so, you must file enforcement against them in court to gain an order from a judge that mandates that this be done.
The creditor will not close your account simply because it bears the names of two people that are no longer married. The law bars them from doing so. However, if you or your spouse ask them to close that account, the creditor will do as you ask. What happens a lot of times is that you, as a single person, will ask the creditor to allow your name to remain on the account. Not so fast, my friend. Many creditors will not allow you to do this and instead make you re-apply for credit standing on your own two feet. If you have a mortgage in your and your spouse's names, you will likely have to refinance the mortgage into your name only to remove your spouse's name from the obligation to pay on the house note.
What goes into making your credit score, anyway?
The exact formula that the credit reporting companies use to determine your specific credit score is unknown. However, we have a pretty solid understanding of what factors are looked at when determining your credit score.
As noted earlier in today's blog post, your payment history is perhaps the most critical factor credit reporting agencies consider when totaling your credit score. If you have made on-time payments for all of your accounts, you should expect a good credit score.
Next, the amounts that you owe are considered. If you owe a lot of money to creditors, this may be negative, especially if you have not been making huge payments towards the principal.
If you have been opening up many new accounts at once and those creditors are requesting copies of your credit report, this will be a negative, at least as far as your credit score is concerned. You may overleverage yourself in terms of debt compared to your income. Creditors will avoid lending to you if you have too many open accounts and have not shown a long history of making on-time payments to each.
Finally, are your credit accounts secured or unsecured? A car loan is a secured loan because if you fail to abide by your contract with the lender, the car can be repossessed. The creditor will at least sell the car to compensate themselves. On the other hand, a credit card account is an unsecured debt. The credit card company cannot seize the items you purchased on credit.
Step out on your own and establish credit in your name only
Piggybacking off of what we were discussing, you ought to try and get credit accounts in your name for no other reason to help build up your credit score. Credit cards and auto loans are two ways that prior clients of our office have done so in a pretty quick fashion after the divorce was finalized. Keep in mind that I only suggest you do so if you already plan to continue borrowing money. To take a more radical approach, you can swear off credit altogether and do your best to pay your debts and plan from that stage moving forward. However, I realize that this is not something many of you would agree to do.
Cash is king- why having ready access to greenbacks is essential during and after your divorce.
A high credit score is excellent, but having cash is nicer. Come back to the blog for the Law Office of Bryan Fagan, PLLC, to discuss this topic in greater detail tomorrow.
In the meantime, don't hesitate to get in touch with the Law Office of Bryan Fagan, PLLC, with any questions regarding this or any other topic in family law. We offer free of charge consultations with a licensed family law attorney.