Advice on How to Rebuild Credit Score After a Divorce
Can you please give me some advice on how to rebuild my credit score after a divorce?
I got into about $20,000 in credit card debt due to the fact that my ex-husband only had a job about half the 7 years we were married. Through the process of our divorce we split the debt between us and I am now almost completely out of credit card debt! Also because of him I now have a low credit score because some of the accounts that he took over would not take my name off the accounts and he has made several late payments and has had creditors after him on those accounts that share my name. I know that it's not a good idea to close unused credit accounts, but if I no longer have control over them should I have him close them when they are paid off? Also, as far as raising my credit score, I have heard that keeping a small balance of a couple hundred dollars on a credit card while continuing to use it and pay on it will help raise a credit score...is this true? Thank you!
- Take a small loan and repay it.
- Get a secured credit card.
- Correct any errors on your credit report.
In divorce, debts are frequently split between the spouses, with one spouse taking one card, the other taking a different card, etc. While the divorce decree states which spouse is responsible for each account, the divorce decree is not binding on the creditors, and if an account was in both spouses’ names, the creditor will continue reporting positive or negative credit information on both spouses’ credit reports. In addition, if the responsible spouse defaults on a joint debt, the creditor has every right to pursue both spouses for payment, regardless to whom the divorce decree has assigned responsibility for payment. Unfortunately, you have experienced one of the down sides of having joint accounts in a divorce; thankfully, though, your debt does not seem to be overwhelming and you have almost paid off all of your credit cards. Congratulations! Now that you have paid off much of your outstanding debt, you should start working toward improving your credit rating so you can obtain the best possible interest rates and terms when you apply for credit in the future. There are several steps you can take to help improve your credit rating, but building and maintaining a good credit score requires diligent effort and a long-term commitment to financially sound living.
If your ex-husband is willing to do so, you should probably have him close the accounts which he has been paying once they are paid off. Even if he will not close them, you should be able to contact the creditors once the accounts are paid off and have them remove your name or close the accounts and issue him new cards in his name alone. Creditors are often unwilling to remove one spouse’s name while a balance is owed, but once the accounts are paid off, they should be much more willing to work with you. Closing an account with a long positive payment history can have a negative impact on your credit score; however, your ex-husband has demonstrated that he does not always make required payments in a timely manner, so you do not want to be connected with these accounts if he decides to charge to them again and starts missing payments. In addition, if he incurs charges and then defaults on the debt, the creditor could come after you for payment of the outstanding balance. Finally, keeping old, paid-off accounts open is usually only beneficial when those accounts have a positive payment history; since your ex-husband has missed payments on many of these accounts, I do not think that leaving them open will have a significant positive impact on your credit rating. Even if there were a slight benefit to keeping the accounts open, I do not think that the benefits outweigh the potential risks associated with having a credit card account for which you are liable totally out of your control.
Since you do not already have a long, positive credit history, you should begin to build one independent of your ex-husband. You can start by opening a few small credit card accounts, making charges on them, and paying off most, if not all, of the balances each month. While leaving a small balance on the cards may help your credit score by a couple of points, you will be paying interest on any revolving balance, so you must weigh this cost against the relatively small benefit. Paying the accounts off each month will help improve your credit score while preventing you from paying interest each month. By using and paying your accounts, you will show yourself to be a responsible user of credit, and your credit score should improve with each month you continue to show a positive payment history. If you find that you cannot obtain a traditional credit card because of credit problems, a secured credit card, in which you deposit cash in an account as collateral for the credit line, can help build a positive credit history. I cannot tell you how much or how quickly opening a new credit account will improve your credit rating, but building new positive trade lines is the key to improving your credit score over the long term.
In addition to the steps outlined above, I strongly encourage you to review your credit reports to verify that all information being reported is accurate and up-to-date. You can request a copy of your credit report from each of the three major credit bureaus — Experian, Equifax, and TransUnion — by visiting AnnualCreditReport.com.
Once you have received copies of your reports, you should carefully review them to make sure that all listings, especially the listings appearing in the "derogatory" category, belong to you and are being reported correctly. Credit reports are notoriously inaccurate, with consumers frequently finding listings of derogatory accounts that never belonged to them or that were paid off years ago. If you find any inaccurate listings, you should dispute them with the appropriate credit bureau.
See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information. Clearing up inaccurate derogatory accounts may significantly improve your credit score, depending on the number of inaccurate listings you find on your reports.
Although rebuilding your credit rating will take time and effort, you are already on the right track; the simple fact that you have reduced your total outstanding debt should have a positive impact on your credit rating. To learn more about credit and strategies to improve your credit score, I encourage you to visit the Bills.com Credit Solutions and Resources page.
I wish you the best of luck for the future, and hope that the information I have provided helps you Find. Learn. Save.