The Woodlands, TX – When a marriage ends in divorce, the lives of those involved are altered eternally. During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to get.
Unfortunately, for many, the experience is the exact opposite. Disappointed promises to pay bills, the maxing out of credit cards, and a total breakdown in communication frequently lead to the annihilation of at least one spouse’s credit. Depending upon how finances are planned, it can sometimes have a negative effect on both parties.
The delightful information is it doesn’t have to be this way. By taking a proactive approach and creating a exact plan to uphold one’s credit status, anyone can make certain that “starting over” doesn’t have to mean rebuilding credit.
The first step for anybody going through a divorce is to obtain copies of your credit report from the 3 major agencies: Equifax, Experian®, and TransUnion®. It’s impractical to formulate a plan without having a complete understanding of the situation. (Once a year, you may obtain a free credit report by visiting www.AnnualCreditReport.com.)
Once you’ve gathered the information, you can begin to attend to what’s most essential. Create a spreadsheet, and list all of the accounts that are presently open. For every entry, fill in columns with the following information: creditor name, contact number, the account number, type of account (e.g. credit card, car loan, etc.), account status (e.g. current, past due), account balance, minimum monthly payment amount, and who is vested in the account (joint/individual/authorized signer).
Now that you have this information at your fingertips, it’s time to construct a plan.
There are two types of credit accounts, and each is handled in a different way through a divorce. The first kind is a secured account, meaning it’s attached to an asset. The most widespread secured
accounts are car loans and home mortgages. The second type is an unsecured account. These accounts are usually credit cards and charge cards, and they have no assets attached.
When it comes to a secured account, your greatest choice is to sell the asset. This way the loan is paid off and your name is no longer attached. The next best selection is to refinance the loan. In other words, one spouse buys out the other. This only works, however, if the purchasing spouse can be eligible for a loan by themselves and can take on payments on their own. Your last option is to keep your name on the loan. This is the most unsafe option because if you’re not the one making the payment, your credit is truly vulnerable. If you choose to keep your name on the loan, make sure your name is also kept on the title. The worst case scenario is being caught paying for something that you do not legally be the owner of.
In the situation of a mortgage, enlisting the aid of a qualified mortgage professional is tremendously significant. This individual will examine your existing home loan along with the equity you’ve built up and help you to determine the greatest course of action.
When it comes to unsecured accounts, you will need to act quickly. It’s important to be familiar with which spouse (if not both) is vested. If you are merely a signer on the account, have your name removed immediately. If you are the vested party and your spouse is a signer, have their name removed. Any joint accounts (both parties vested) that do not carry a balance should be closed immediately.
If there are jointly vested accounts which carry a balance, your best decision is to have them frozen. This will ensure that no future charges can be made to the accounts. When an account is frozen, however, it is frozen for both parties. If you do not have any credit cards in your name, it is suggested you obtain one before freezing all of your jointly vested accounts. By having a card in your own name, you now have the opportunity of transferring any joint balances into your account, guaranteeing they’ll get paid.
Ensuring payment on a debt which carries your name is paramount when it comes to preserving credit. Keep in mind that one 30-day late payment can drop your credit score as much as 75 points. It is also vital to know that a divorce decree does not override any arrangement you have with a creditor. So, regardless of which spouse is ordered to pay by the judge, not doing so will influence the credit score of both parties. The message here is to not only eliminate all joint accounts, but to do it fast.
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Information from various finance sources including Woodforest National Bank, Genisis Mortgage Company, etc.
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