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Divorce proceedings are economically and emotionally stressful for the many people who have to experience them. You should be aware of specific credit repercussions so that you may best prepare for them after your divorce is official. Continue reading below to explore the different ways divorce impacts your credit.
Does a Divorce Itself Affect Your Credit?
You should note that the very act of going through a divorce doesn’t directly affect your credit in any way. After all, while your taxes may reflect your marital status, your credit report does not. Instead, any change in credit score is the byproduct of splitting up joint accounts.
Closing Joint Accounts
You and your ex-spouse need to make sure you’re very thorough with removing each other’s names from any joint accounts you have. As far as your credit report is concerned, you’re still responsible for any open accounts with your name on them, regardless of any other agreements you and your spouse have in place. You could be in for a big shock down the road if you don’t cross all your Ts and dot your Is.
Closing Credit Cards
Keep in mind that taking your name off a credit card can affect your credit rate, which reflects how much of your available credit you use at any one moment. Cutting off a line of credit reduces the total amount of credit have available to you at the time, and it can lower your score by several points.
Inability To Pay Your Mortgage
If you can no longer afford your monthly payments on your home due to the loss of your spouse’s salary, you may need to sell your house quickly. In some cases, you may need to seek a short sale, where you sell your home for less than what you owe on your mortgage to avoid foreclosure. Short sales hurt your credit for 18 to 24 months on average, but foreclosures can linger on your credit record for 7 years. Therefore, refinancing or quickly selling your house is in your best interest.
You need to know the different ways divorce can affect your credit to work toward repairing any drops in your score. Ideally, you should work with your divorce attorney to ensure you’ve relieved yourself of any financial obligations, such as credit cards that you’ll no longer be using. That way, you won’t have any surprises down the line.