Divorced With Joint Credit Accounts can Lower Your FICO Score
No consumer is prevented from acquiring credit solely based on marital status. The Equal Opportunity Credit Act outlaws discrimination of all forms to provide consumers with equal access to credit resources. If you recently experienced a divorce, however, your credit score may be negatively impacted after you separate from your spouse.
If, like most couples, you and your spouse share joint debts, getting a divorce can lower your FICO Score. The damage your credit will suffer as a result of divorce will vary depending on how you and your spouse divide your jointly held debts.
Couples don’t always act in the most rational manner when it comes to splitting debt responsibilities throughout their divorce. For example, a spouse seeking revenge might allow debts to go unpaid in order to watch the other spouse suffer financially. When this occurs, the FICO Score of both spouses is negatively affected.
Most divorcing couples believe that a divorce decree can relieve a spouse of a joint financial obligation. Not true! Court orders and divorce decrees can’t save divorcing couples from financial peril if one or both spouses act irresponsibly. Divorcing couples have a naive expectation toward court orders, like they’re magic — but court orders are not magic. Divorcing couples have to learn to take responsibility for their own finances and their own lives. The sooner they learn this, the more quickly they’ll be able to limit the damage to their credit rating.
Your payment history has more impact on your FICO Score than any other aspect of your credit history. Debts that both you and your spouse are responsible for will appear within both of your credit files. Most consumers who suffer from poor credit after a divorce do so because they assume that the divorce decree divides legal responsibility for their debts. This isn’t the case. If you and your spouse owe a joint debt and the judge assigns the debt to your spouse, any missed payments on the account will impact your credit rating.
The Fair Credit Reporting Act notes that missed payments, charge-offs, collection accounts, foreclosures, repossessions and most judgments remain a part of your credit history for seven years from the account’s first 180-day delinquency. Thus, mistakes you and your spouse make with debt during the course of a divorce will haunt both of your credit reports for many years to come.
The Federal Trade Commission recommends paying close attention to payments during the divorce and dividing all of your assets before the divorce is final. Regardless of how trustworthy you feel your spouse is about paying off debt, any accounts that have your name on them pose a threat to your credit rating if they aren’t in your control. After a divorce, you can return to court and attempt to force your spouse to sell or pay off assets that have your name on them if she will not make regular payments to creditors.
The act of closing accounts, although necessary during a divorce, has a negative impact on your FICO Score. Ten percent of your FICO Score depends on the age of your credit history. If the accounts you close during divorce proceedings represent your oldest accounts, this shortens the length of your credit history, and your FICO Score suffers as a result. The damage done, however, is far less than that of missed payments, defaulted accounts or creditor lawsuits.
Regardless of the damage your credit score suffers, paying your bills on time and carrying a low debt load will help your FICO Score recover. The amount of time it takes for your FICO Score to recover depends upon the degree of damage it suffered and the amount of positive information present within your credit history.
Tags: Charge Offs, Closing Accounts, Collection Accounts, Credit History, Credit Resources, Creditor Lawsuits, Debts, Defaulted Accounts, Divorce, Divorce Proceedings, Divorced, Divorcing, Equal Opportunity Credit Act, Fair Credit Reporting Act, Federal Trade Commission, FICO Score, Foreclosures, Joint Credit Accounts, Joint Debts, Judgments, Missed Payments, Repossessions, Spouse