Why Your Credit Report Matters More Than Ever during Divorce

Divorce is emotionally and mentally taxing, and amid the legal and personal upheaval, it is possible to overlook your financial health, especially your credit report. Many people only think about credit when applying for a loan or making a major purchase, but during a divorce, your credit report can play a pivotal role in safeguarding your financial future.

Taking the time to review and understand your credit report can help you catch errors, identify shared debts and prevent unexpected financial setbacks. It’s a small but powerful step toward regaining control and building a stable foundation for your next chapter.

Start with a clear picture of your credit

A credit report is a detailed record of your loans compiled by credit reporting agencies (also called credit bureaus) like Equifax, Experian and TransUnion. It includes information such as the timing of your open and closed credit accounts, payment history, outstanding debts and any public records like bankruptcies or foreclosures.

Your credit score is a three-digit number that typically ranges from 300 to 850. This number summarizes your creditworthiness based on the data in your report, and potential lenders use this score to assess how likely you are to repay borrowed money.

A good credit score is often deemed to be a number in the mid 600s and above. The higher your score, the more likely you are to qualify for favorable loan terms, lower interest rates and better financial opportunities.

In the U.S., you are entitled to one free credit report per year from the three major credit bureaus: Equifax, Experian and TransUnion. You can request your report online through AnnualCreditReport.com or directly from the credit bureau.

Divorce doesn’t hurt your credit, but shared debt can

Divorce does not directly impact your credit score, as your marital status isn’t included in your credit report. However, divorce can have a significant impact on your credit health due to how shared financial responsibilities are handled during and after the separation.

Below are the key items to understand as you review your report:

1. Spot shared liabilities and know what you’re responsible for

If you and your spouse shared credit cards, were both on a mortgage, loans, or other joint accounts, both of you remain legally responsible for those debts during and even after the divorce.

Start by carefully reviewing the credit accounts and public records sections of your report, noting any listed liabilities. Make sure you understand what each item is related to and communicate this to your team so they can document all liabilities and help ensure they are accounted for on your Marital Balance Sheet. If joint liabilities are tracked throughout the process, this can help you come to an appropriate settlement, rather than being surprised by debt toward the end of the process.

If there is an account that appears to only be tied to your name, be sure to check on authorized users as well. It is possible that this line of credit is not joint, but your former spouse has access, which gives them the ability to impact your credit.

It’s important to consider which liabilities and credit accounts you’d like to retain after the divorce, so you can factor this into your agreement—but know it will not always be possible to maintain your existing accounts. For example, some institutions will not allow you to remove the primary owner of an account, even if you both agree to it.

2. Look out for red flags, including fraud or misuse

In some unfortunate cases, one spouse may intentionally damage joint credit accounts or simply fail to manage them responsibly. A former spouse could open credit lines in your name or misuse joint accounts without your knowledge. This can lead to increased debt, past due payments or even collections, all of which hurt your credit. Reviewing your report can help you catch anything like this.

Additionally, financial fraud is growing each day, and by reviewing your credit report, you can help ensure there are no unauthorized accounts opened without your consent or irregular activity, even if they are not related to your former spouse.

If you are concerned about fraud, you can freeze your credit for free, but you will need to contact each bureau individually. Keep in mind that this will prevent all lenders from checking your credit, so if you are planning to open a new account or take out a loan, you will either want to wait until these are approved or temporarily lift the freeze.  

3. Confirm that post-divorce changes are being carried out

A divorce decree or marital settlement agreement may assign responsibility for certain debts to one spouse, but creditors aren’t bound by that agreement. If your name is still on the account, you’re still liable in the eyes of the lender.

After the divorce, you should verify that all financial agreements made during the divorce are being followed and no unpaid debts are accumulating under your name.

You can refer to the terms of your divorce decree or Marital Settlement Agreement to help ensure proper action is taken to close joint accounts or reassign these liabilities. Each institution will have a different process for removing or closing accounts, so communicate clearly with your former spouse to help avoid surprises during these transitions.

Do not be alarmed if you see some closed lines of credit listed on your report after the divorce. Closed accounts in good standing can remain on your credit report for up to 10 years. These can help your credit score by contributing to a longer credit history and showing responsible past behavior.

4. Start building or rebuilding credit in your name

If you didn't have credit in your own name during the marriage, it is important to understand that your credit limit and score might be lower than expected, even if you do not have any negative marks on your report.

It can take time to build your own credit score, and there are credit card options for individuals with little to no credit history. The good news is that if you were a joint owner with good credit habits, the credit history will remain on your report. If you were an authorized user, this data is often reported to credit bureaus to help build your score.

If you and your spouse share a mortgage, discuss your options early. One spouse may not be able to assume the existing mortgage, particularly if income or credit limits are a concern post-divorce.

Divorce is a significant life transition, but taking control of your finances by reviewing your credit report can prevent future complications. What could you discover or prevent by taking a closer look at your credit today?

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