One of the biggest hassles during divorce is untangling your finances from your ex’s. Whether you are represented by an attorney, or using a mediator, give some thought and planning to rebuilding your credit after divorce.

Start With the Joint Accounts

Most married couples have joint bank accounts and joint credit card accounts, and might even hold valuable property in common – your home, of course, but also stocks, bonds, precious metals, rental properties, even cars. Depending on how you set things up, you might find yourself walking out into the world without much recent credit history.

The first thing you need to do is to get out of your joint accounts, because you are equally liable for any debt on them, no matter which one of you incurs it. Close the accounts or have them frozen until you and your ex (or your lawyers) can figure out who’s responsible for what. You can also change many account types (such as bank accounts) from joint to individual if you ask. There’s good reason to change them rather to start fresh: having existing accounts in good standing will affect your credit score more positively than new accounts, and is a good start to rebuilding your credit after divorce.

Past Payment Histories May Follow You

The good news is that if you and your spouse kept current on your joint accounts (or joint mortgage, if you had one), that good credit extends to you as an individual. The bad news is, if you let things slide, that reflects on your solo credit score as well.

Not sure if all the bills got paid on time? The federal Consumer Finance Protection Bureau offers guidelines to requesting your free credit report. Remember, you are entitled to one free credit report every year, so it’s worth it to find out sooner rather than later.

In my case, I was lucky: my ex-wife insisted we keep our bank accounts separate when we got married, and since we were renters with no mortgage, when we split up there was no process of separating our finances; her near-perfect credit score wasn’t affected by my, uh, less than stellar one. (She still uses my Netflix account, though, which is why I keep getting depressing subtitled European art movies in my Recommended For You list. I think it’s a small form of revenge.)

Using Secured Cards for Rebuilding Your Credit After Divorce

 Once you’ve divested yourself of responsibility for your ex’s debts, it’s time to start building up your individual credit. The simplest way to do this — even if you have always had good credit —  is to obtain a secured credit card, or better yet, two secured credit cards. If you’re not familiar with the concept, you get a secured card by putting up a relatively small deposit (usually around $500) with the card issuer or bank, for which you receive an equal amount of credit. If you default on payments, the issuer keeps your deposit, so it’s very low-risk for them, and after a certain period (usually a year), you get your deposit back if you’ve proven your ability to keep current on your payments.

Don’t use your secured credit card to make big-ticket purchases that you pay off over time, especially if it has high interest rates attached. Instead, use it to pay recurring costs, like utility bills. that you know you can cover on time. That way, you’ll establish perfect credit over time.

Getting Out of Debt

You’ll also need to handle any existing debts, whether you incurred them by yourself or as a couple. That means negotiating with bill collectors and setting up regular payment plans.

If they’re small enough, you might think of using your secured credit card to pay them if possible; that way you’re killing two birds with one stone by slowly erasing your debt and establishing a good pattern for the future. Don’t do it! Robbing Peter to pay Paul can cause you a lot of trouble if you’re not diligent and leave you with higher interest and a tanked credit score.

Getting out of debt is an important part of rebuilding your credit after divorce. As detailed in a recent Forbes article, getting out of debt takes planning, commitment, and the ability to stick to a pre-determined spending plan.  Yeah man, that means a budget.

Rebuilding Your Credit After Divorce Is Empowering

 Part of the whole point of credit is establishing a history, which means that it’s going to take time to establish yours, whether you like it or not. That can be tough, especially if you have to overcome years of bad or nonexistent credit and whittle away at long-standing debt. But at least you know that from here on out, you’ll be the master of your own financial destiny, beholden to no one. Well, except your credit card company.

Where you left holding the financial bag after your divorce? Tell us how you are rebuilding your credit after divorce in the comments below.

Check out more financial advice and information in Will Gray Divorce Put Your Retirement in Jeopary?  and What to Do if Your Spouse is Hiding Assets During Divorce.

 

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(c) Can Stock Photo / AndreyPopov

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