November 2nd, 2018 8:26 PM by Chris M Caggiano MLO
ST – When a marriage ends in divorce, the lives of those involved are changed forever.
During this time of upheaval, one thing that shouldn’t have to change is the
credit status you’ve worked so hard to achieve.
for many, the experience is the exact opposite. Unfulfilled 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 structured, it can sometimes have a negative impact on
good news is it doesn’t have to be this way. By taking a proactive approach and
creating a specific plan to maintain one’s credit status, anyone can ensure
that “starting over” doesn’t have to mean rebuilding credit.
first step for anyone going through a divorce is to obtain copies of your credit
report from the 3 major agencies: Equifax, Experian®, and TransUnion®. It’s
impossible 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.)
you’ve gathered the facts, you can begin to address what’s most important.
Create a spreadsheet, and list all of the accounts that are currently open. For
each 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
that you have this information at your fingertips, it’s time to make a plan.
are two types of credit accounts, and each is handled differently during a
divorce. The first type is a secured account, meaning it’s attached to
an asset. The most common secured
accounts are car loans and home mortgages. The second type is an unsecured
account. These accounts are typically credit cards and charge cards, and
they have no assets attached.
it comes to a secured account, your best option is to sell the asset. This way
the loan is paid off and your name is no longer attached. The next best option
is to refinance the loan. In other words, one spouse buys out the other. This
only works, however, if the purchasing spouse can qualify for a loan by
themselves and can assume payments on their own. Your last option is to keep
your name on the loan. This is the riskiest option because if you’re not the
one making the payment, your credit is truly vulnerable. If you decide to keep
your name on the loan, make sure your name is also kept on the title. The worst-case
scenario is being stuck paying for something that you do not legally own.
the case of a mortgage, enlisting the aid of a qualified mortgage professional
is extremely important. This individual will review your existing home loan
along with the equity you’ve built up and help you to determine the best course
it comes to unsecured accounts, you will need to act quickly. It’s important to
know 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.
there are jointly vested accounts which carry a balance, your best option 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 recommended you obtain one
before freezing all your jointly vested accounts. By having a card in your own
name, you now have the option of transferring any joint balances into your
account, guaranteeing they’ll get paid.
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 important to know that a divorce
decree does not override any agreement you have with a creditor. So, regardless
of which spouse is ordered to pay by the judge, not doing so will affect the
credit score of both parties. The message here is to not only eliminate all
joint accounts, but to do it quickly.
is difficult for everyone involved. By taking these steps, you can ensure that
your credit remains intact.
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