Will a Divorce Impact My Credit Score?

Are you preparing for a divorce? It can be a big financial transition. It is crucial that you are properly prepared. You may be wondering: Will getting a divorce have a negative impact on my credit score? There is no automatic overdrive effect associated with a divorce—but the change does bring financial risks that could potentially hurt your credit rating. Here, our Houston divorce attorney explains the key things to know about divorce and credit scores in Texas.

A Credit Score Matters (Know the Impact On Your Life) 

The Consumer Financial Protection Bureau (CFPB) explains that a credit score is effectively a “prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.” Notably, your credit score plays a critical role in your financial health. It influences your ability to get approved for loans, credit cards, rental housing, and even employment opportunities in some industries. Indeed, a higher credit score generally leads to better interest rates and more favorable terms.

 A Divorce is Not Inherently Negative for Your Credit Rating 

Many people who go through a divorce are worried about the potential impact that it could have on their credit rating. Here is the good news: Divorce itself is not a direct factor in credit score calculations. The credit reporting agencies—Experian, Equifax, and TransUnion—do not reduce your score simply because you end a marriage. Still, if a divorce undermines your financial health—such as leading to a missed payment—it could adversely affect your credit rating.

 Going Through a Divorce Brings Financial Risks: Proactive Approach is a Must 

While divorce does not automatically harm your credit, what comes with the process can sometimes  put your score at risk. For this reason, a proactive approach is a must. Here are some key financial risks that are commonly associated with a divorce that you should be ready to handle:

• Joint Debts and Missed Payments: If you and your former spouse share credit cards, car loans, or a mortgage, a missed or late payment can negatively impact both parties’ credit. Even if the court assigns a debt to your ex, the creditor can still hold you responsible if your name remains on the account. You may want to get your name off of the account.
• Credit Profile Changes: Opening new accounts, closing joint ones, or refinancing can temporarily affect your credit utilization ratio and average account age—both of which factor into your credit score. Though, in some cases, the impact can be very temporary. Opening a new account usually only hurts your credit score for a short period of time.
• Reduced Household Income: Divorce often results in a lower income for one or both spouses—and that can make it harder to keep up with bills. Budgeting and adjusting spending habits post-divorce is essential for financial stability.

Call Our Houston, TX Divorce Attorney Today

At Lindamood & Robinson, P.C., our Houston divorce lawyer has the professional experience that you can rely on. We are focused on finding family law solutions. If you have any questions about divorce and financial matters, please do not hesitate to contact us today. With an office in Houston, we provide family and divorce representation throughout Southeast Texas.

Source:

consumerfinance.gov/ask-cfpb/what-is-a-credit-score-en-315/