How To Rebuild Your Credit Score After Divorce

Rebuilding credit after divorce can be challenging.

Divorce often results in serious credit issues such as missed payments, ballooning credit card balances, and increased monthly payment obligations. The good news is that the damage can be repaired as long as you follow some of these simple steps.

Does getting divorced ruin your credit?

No, divorce alone does not ruin your credit.

Your credit score, also known as your FICO score, is a measure of how well you manage your debt. Debt that could appear on a credit report include tradelines such as:

  • Mortgages
  • Secured or unsecured lines of credit
  • Credit cards
  • Auto loans or auto leases
  • Student loans
  • Collection accounts and judgments for past due debt
  • Child Support and Alimony

Creditors don’t penalize you just for getting a divorce. As long as you continue to be responsible for managing your credit, then your credit score will not be impacted.

Below is a screenshot of the front page of a comprehensive credit report.

You will notice that it includes total balances, and monthly payments for accounts such as Real Estate, Revolving, and Other Accounts.

The table also includes details such as length of credit history, number of delinquent accounts, the severity of delinquent accounts in addition to public records.

Credit report summary page to review during divorce

What factors can ruin your credit during a divorce?

Divorce alone will not ruin your credit.

There are many other factors that can contribute to damaged credit during a divorce. Here are a few:

  • Delinquent payments 30 days past due
  • Credit card or line of credit balances that exceed 50% of the available credit limit
  • Excessive amount of credit inquiries or credit report pulls
  • Past derogatory credit such as bankruptcy, foreclosure, short sale, etc.
  • Lack of credit history prior to divorce

Below is an example of the three credit bureaus provide details about the factors contributing to your credit score.

These factors are usually ranked in order of importance. This will keep you a complete picture as to how your score was determined.

credit score factors that impact your credit score in a divorce

Does child support or alimony impact my credit?

It’s important to know that child support and alimony may appear on your credit report. However, child support and alimony will not have a negative impact on your credit as long as the amounts are paid on time and in full.

Simply having debt doesn’t mean that you are hurting your credit score. In fact, the credit bureaus like seeing that you have a history of debt and that you are diligent about making payments on time. Sometimes the absence of credit can lead to a lower score.

In other words, don’t worry about the impact of debt alone. As long as you are responsible about making your payments during or after divorce, your credit score will reflect that.

How do I know what my credit looks like?

Start by review your credit report to see exactly what information it contains. Start by visiting a website like Annual Credit Report. The ideal credit report will show credit scores from the 3 major bureaus – Equifax, Experian, and TransUnion. It will also show every tradeline you have had since you began establishing credit prior to marriage.

There are often joint obligations that go unaccounted for during the course of a divorce settlement. Therefore, it’s important to review your credit report to account for all outstanding debt.

Then, determine which specific debts or accounts you are responsible for maintaining during and after the divorce.

Another reason it’s important to assess your current credit report is because of the risk of identity theft.

While you may know which outstanding debts you have, there are people in the world trying to take advantage of you. If they are able to steal your identity, they can wreak havoc on your credit report.

Identity theft is very difficult to resolve if it has an impact on your credit. Protect yourself from this risk by doing an annual credit review.

What can I do to fix my credit score after a divorce?

Building good credit is a long game. In other words, if you are trying to fix a damaged credit score it will take some time. Be patient, and follow these simple steps:

Establish your own credit history

Often times during a marriage a couple’s credit obligations are jointly held in the name of both spouses. In other cases, a debt might only be in the name of your spouse alone.

Either way, just because the judge might assign a joint debt to your spouse doesn’t mean you’re off the hook. From a creditors standpoint, any missed payments will be a reflection on both of you and your score will reflect as much.

Creditors and credit bureaus won’t relieve you of debt just because the court said so.

This is imperative to remember.

It’s also important to open up a card in your name alone regardless of how many good long-tenured accounts there are. Holding an account in your name alone will significantly improve your score as payments are made and time passes.

You also want to avoid commingling your debts with your spouse as you work to finalize your divorce settlement. Establishing an account in your name alone will help organize your spending and help you take control of the outcomes.

Pay all bills on time

Bills that could impact your credit rating if not paid on-time include credit card payments, auto loans, mortgages, student loans, and many others.

Creditors report any debt 30 days past due to all 3 credit bureaus. The three credit bureaus are Experian, Equifax, and Transunion. These past due balances continue to impact your credit as they move past 30 days, to 60 days, and 90 days and so on.

Don’t EVER allow a payment to go 30 days past due without expecting a significant hit to your credit rating. Any accounts that reach 60 or 90 days past due will have an even greater negative impact.

Below is an example of a specific tradeline that could be listed on your credit report.

Notice that this credit report was from 2019, and there is an account that has a history as far back as 1977.

You will also notice that this tradeline includes complete payment history, including the current balance and monthly payment. The tradeline will also show whether the account is open or closed.

credit report tradeline showing credit payment history and balance and monthly payment

Pay down your balances

When rebuilding your credit after divorce, you should be proactive and practice responsible spending.

Your debt ratio which is the total outstanding balance divided by your current allowable spending limit, should not exceed 50%. In other words, don’t borrow more than 50% of the amount the creditor extends to you.

If you do exceed this 50% threshold in any given month, be sure to pay it down once the monthly bill comes due. Paying down these debts is one of the fastest ways to rebuild credit.

Don’t confuse the strategy of applying for new credit as a way to borrow more money in the future. This approach is simply to assist in accelerating the overhaul of your current credit rating. This still requires proactive management coupled with disciplined spending and savings strategies.

What do I do if I can’t get out of debt?

A divorce is an event that can often lead to excessive debt. As clients rack of attorney’s fees, while at the same time dividing their assets in half, many divorcees are overwhelmed by the burden of their debt.

Sometimes it’s too difficult to get out of debt on your own. Sometimes it’s too difficult to rebuild your credit using your own financial means.

This is where a credit repair agency can be called on for help. Hiring a credit repair agency can ensure that you don’t make mistakes along the way.

These credit repair services are also adept at expediting the credit repair process as a whole. However, these services will have fees and costs associated with their services. Be sure that the benefit of their service exceeds the burden of more bills.

What about filing for bankruptcy in divorce?

Filing for bankruptcy is another option to be reserved as a last resort. A bankruptcy proceeding will delay the ability to divide your assets and debts during a divorce. Therefore, it is most commonly filed following a divorce settlement.

If you plan to file for Chapter 7 bankruptcy, the petition can either be filed prior to the divorce settlement or after the divorce judgment has been entered. The decision is going to depend on depending on whether you plan to maintain a single household.

As with all decisions in divorce, the choice to file for bankruptcy should be carefully considered. The pros and cons should be weighed against each other, both in the short term and the long term.

Also, don’t forget that bankruptcy will have a severe impact on your credit report. You may not want to do this if you plan to apply for a mortgage after the divorce is over.

Most lenders require an individual to be at least 4 years removed from bankruptcy before they will lend you money. This could severely delay your plans to purchase a new home for yourself and/or your kids after the divorce is over.

What else do I need to know?

At the end of the day, your credit is completely in your control. As long as you know who you owe, how much you owe, and when those payments are due you will be fine.

At some point following the divorce, it will likely make sense to consolidate your debt.

In the meantime, be proactive and be responsible. This is the best way to protect and rebuild your credit in divorce.