4315 North Service Road, Burlington, ON, L7L 4X7
My Garage

Can divorce impact your credit score?

Can divorce impact your credit score?

Today’s car loan post was inspired by a question asked by a friend of mine the other day. That question was, ‘Can divorce hurt my credit score. I have been told no but have also had friends whose score went down after a divorce. What gives?’ If you find yourself in this unfortunate situation, will you still be able to get a car loan? How will your score be impacted?

The truth is that the technicalities of a divorce do not impact your credit score. That score is based on your earning to debt ratio, your history of making payments and so on. All things unaffected by your marriage status.

The practicalities of divorce can have an impact on your credit score though. That’s because many couples have joint accounts, joint mortgages, joint credit cards and so on. If managing those accounts is impacted during proceedings, that can affect your credit score.

Joint finances

Your credit report will track all financial accounts you are a named holder of. That includes both sole accounts and joint accounts. As divorce can impact the status of these joint accounts, payments get missed, accounts get cleaned out despite impending debits and so on. All this can have an impact.

In acrimonious divorces, a partner may be unwilling to honour payments or debts held jointly. Unless you can cover those payments, this can also impact your credit when payments are missed.

In the confusion and emotional turmoil of a divorce, it is easy to forget or overlook joint accounts that can have debt or debits outgoing and not making payments will also impact credit.

Planning for credit survival

To avoid these situations, it would be best to settle as many joint accounts as possible before or during divorce. Cancelling debits, settling any debts and making the settlement of joint debt part of the divorce agreement can help avoid the vast majority of negative financial outcomes from an already turbulent time in your life.

In an ideal world, couples would remain civil and work together to tie up all loose ends and end things amicably. You can then both move on with a clear conscience and clear from financial commitments to each other.

We all know that this rarely happens. If you are not able to work with your partner to tidy things up, work with your creditors instead. Talk to all organizations you have joint accounts with, explain the situation and work with them to help manage it. You may be able to convert certain joint accounts to individual ones wherever possible so you can control things.

It is best to pre-empt potential issues as quickly as possible as soon as divorce is certain. Working with your lenders will help you fiscally survive much better than trying to muddle through so is definitely the way to go if you want to preserve your credit score.

Categories: News

Tags: , ,