It is no secret that divorce has a significant impact personal finances. While issues like cost of living and property division are often at the forefront of people’s minds in a split, credit scores are also something worth keeping an eye on. A significant proportion of divorcees say divorce negatively impacted their credit score, making it an important consideration for North Carolina divorcees.
According to a survey, 54% of women and 42% of men who have been divorced experienced a dip in their credit score after ending their marriage. This is not directly due to the divorce per se, but rather the shift in financial circumstances that can come from ending a marriage. Here are a common reasons situations that could happen in a divorce which may impact a credit score:
- Skipping payments on shared debt: Even if a court names one party wholly responsible for a debt, banks may not see it that way if it is in both spouses names. While someone may be legally entitled to not pay down a debt that they are not responsible for in the eyes of the courts, they may still suffer the consequences to their credit score if it is not paid. It is therefore very important to know what debts are involved in one’s credit report in order to keep an eye on all payments on both sides.
- Getting rid of shared credit cards: One factor involved in calculating a credit score is “credit utilization ratio.” Simply put, the more credit one has access to relative to their debts, the higher their score might be. Getting rid of joint credit cards may lessen the amount of available credit for the individual, lowering their credit scores at least temporarily.
- Not understanding one’s credit report: Many of the issues that can lower a credit score in divorce are avoidable, or if not avoidable, they can be temporary. However, knowing the possible pitfalls ahead of time can help to prevent too much of a dip. For example, it may be worth agreeing to help pay down a shared debt if it means meeting the minimum payments, or it may be a good idea to check the ownership of credit cards before ending things.
As with most issues related to divorce, knowledge and preparation are key. Those who are aware of how divorce could impact their credit score are better equipped to prevent it. Working with a North Carolina lawyer who is knowledgeable about property division and other important legal issues is also key.