Credit and Divorce
Unfortunately a lot of harm is caused to credit scores by a person’s ex. Even after you have divorced you can still take the fall for your ex partner’s sloppy credit score.
Your ex does not have to be particularly mean or vengeful. They only have to be broke, inept or lazy. All it can take for your ex to ruin your score is to make a few late payments. As long as your name is still on the loan, his or her bad behaviors can continue to show up on your credit reports and affect his credit score.
Unfortunately this means that even though a divorce decree has said that a former spouse is responsible for paying a debt you can still be on the hook when it comes to your credit score. This is because creditors don’t have to give a hoot what a credit score is. All they care about is that your name was on loan well before you decided to get a divorce. So if your name is still on the loan, the account was opened jointly or your spouse was added as an authorized user of a credit card, you can be held responsible.
Usually the biggest way to end up in this fix is to not use an attorney to assist with a divorce. The best time to handle issues of course is well before the divorce is final.
Still if an ex manages to wreak havoc on your account there are some things that can be done to address the problem –
Get your credit reports. Identify every single one of the credit accounts that your ex could access. If the account is listed as joint, rather than individual your spouse can probably use it. If the account is listed as individual and is still open, call the creditor to find out whether your spouse is listed as an authorized user.
Take action. Once you identify the credit accounts that your ex could access then you need to make a phone call to the card issuer and also follow it up in writing.
With joint accounts it is bets to try a close them whenever possible or you might have to settle for “freezing†the account if you owe a balance. A freeze will prevent either one of you from using a credit card until the matter is resolved.
Unfortunately though a spouse can sometimes talk a creditor into lifting a freeze, which is why it is important to put your request in writing and provide documentation that the two of you are divorcing. You should also make it clear that you won’t be responsible for any charges made after the freeze is in place.
If you do have a balance that does not belong to you make sure that it is transferred as soon as possible to the card of the spouse who will be responsible for paying it of.
In extreme situations where your spouse is very bad with credit you might need to take responsibility for a debt that is not yours to protect your credit score. This might just be a necessary evil. You can always take the ex back to court for reimbursement, but either way, you shouldn’t leave your credit in his or her hands for a second longer.
A few months after you make your requests get another copy of your credit report to make sure your accounts are listed properly. If an account that was closed is listed as open or if the balance on a frozen account has grown make sure you follow up immediately with the creditor.
Don’t make late payments … Divorce negotiations can make paying your bills on time difficult. Just keep in mind that it only takes one late payment to seriously hurt your credit. If you need to make payments on an account that ultimately belongs to your spouse to pay you might have to do it to protect your credit score.
Dealing with mortgages, car loans and secured debt … Ideally you should sell the asset and split up the proceeds or refinance the loan so that the spouse who is enjoying the asset has to pay for it. If refinancing is what you want to do then make sure you do it before the divorce is final.
The worst-case scenario is signing a quit-claim or having your name taken off the title of a house or other piece of property as long as your name is still on the loan. You don’t want to be responsible for a debt if you no longer own the asset.
Use a Fraud Alert if necessary … If you are in a very nasty divorce or if your spouse is an addict or mentally ill you could find yourself ending up a victim of identity theft. After all your spouse does know your social security number, your address and just about any other detail required to open up a new account in your name, run up a balance and leave you holding the bag.
Your ex could even file a bankruptcy in your name because many places don’t require identification when a bankruptcy is first filed. By the time you get a hearing to correct this, the bankruptcy will already be in the central database of the credit bureaus and will show up on your credit report. This type of fake filing is a crime but this does not stop some vengeful exes from doing it.
Asking the Three credit bureaus to put a fraud alert on your files won’t necessarily prevent any of this from happening, However it should make it a little more difficult for your ex to open new accounts in your name.
Look For Non-FICO Lenders .. If your ex is making your life hell it is best to use a lender that will not report your FICO scores. Although the vast majority of mortgage companies use FICO scores in their lending decision, a few don’t and that can benefit someone with a troublesome ex.
In this case too you can benefit from a lender that doesn’t sell its loans to investors like Freddie Mac and Fannie Mae as these companies require the use of FICO scores. If the lender keeps its loans in house rather than selling them on the secondary market as it is often more flexible with its lending standards.
8. In Conclusion: Beware the Upside Down Loan
In conclusion, it is time to reiterate that age-old cliché. Never borrow what you can’t pay back.
Many people assume that they can afford a house, education or other purchase if they can meet the monthly payments. However this is myopic thinking that will chain you to a lifetime of paying interest on stuff that will break, wear out and become obsolete long before the last payment on it is due.
Another hazard is trapping yourself into what is called an “upside down loan.†An upside down loan is one that has you driving off a car lot with a vehicle that in the long term will cost you twice as much as if you had just paid cash for it. Surprisingly that is the case or a staggering 80% of car owners. Many of them pay for a loan that can take as long as eight years to pay off. These long pay-back periods combined with the speed with which a new car depreciates means that you will be paying a true “upside down loan.â€.
One way to get around all credit debt is of course to pay cash for everything. In fact rather than getting you an upside down loan paying cash for things can actually get you a discount.
So what is the secret to avoiding the upside down loan? Never borrow any amount of money for anything, including a mortgage or student loan – that you can’t pay back in three years. Give yourself a three-year payback period and you will curb the temptation to overspend. You won’t have to go without, you will just find you are more realistic about your expenses.
This type of tactic will never leave you feeling helpless or outplayed by credits again. Instead of being at the lender’s mercy you will be once again in charge and able to enjoy greater wealth, greater freedom and the ability to get the loans that you need, when you need them at the best possible rates!!