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5 Steps to Repair Credit After a Divorce

Divorce puts a serious strain on your emotions, but there’s also the potential for long-lasting damage to your finances. If you and your former spouse racked up a significant amount of debt together during the marriage, untangling the mess can be a challenge. When you owe credit card bills, car loans or mortgage loans jointly, it puts both your credit scores at risk if they go unpaid. On that note, if your credit has taken a hit because of a divorce, there are some things you can do to repair the damage.

Close Joint Accounts

Unless there’s a specific reason for leaving them open, you should close any joint credit accounts as quickly as possible. Doing so means that neither of you can rack up any additional debt in the other’s name without their knowledge. If either of you is listed as an authorized user on the other’s account, you should also contact your creditors to have those privileges removed. Closing joint accounts may ding your credit in the short-term, but it’s a small price to pay to ensure that you’re not responsible for any new debts.

Check Your Credit Reports

Once the dust from your divorce begins to settle, you’ll want to take a look at your credit report. You should review your credit history carefully to make sure that all your individual and joint accounts are being reported properly. Keep an eye out for creditors or debts you don’t recognize, and pay special attention to the payment history for joint debts that your ex is responsible for paying.

If you see an error or an account you don’t recognize, don’t waste any time disputing it with the agency that reported the information. Submit your dispute in writing, with your name, address and account information. In the case of a joint account that’s been assigned to your ex, it may also be helpful to send a copy of the divorce decree.

Stay on Top of Your Bills

Although there are several different types of scores lenders use to determine creditworthiness, the FICO score is the most commonly accepted. Your FICO score is based on five factors, and payment history accounts for the largest piece of the pie. Following a divorce, your top priority should be paying all your bills on time, including utilities, rent or mortgage payments and any debts that were assigned to you.

Proper budgeting and organization can go a long way towards helping you establish a solid payment history. If you weren’t in charge of making the household budget when you were married, or you ended up with more marital debt than your income can handle, you might want to consider contacting a nonprofit credit counseling agency. They can look over your income and expenses to help you come up with a workable budget.

Pay Down Your Debt

FICO scores are also determined in part by the amount of debt you owe versus your available credit. If you left the marriage saddled with debt and had to close several accounts in the process, you’ll need to develop a plan for paying it off as quickly as possible. In situations where you and your ex are paying the debts together, you’ll want to try to get them on board with stepping up the repayment schedule.

Slowly Establish New Credit

If your credit was severely damaged because you and your former spouse went through a short sale, foreclosure or bankruptcy, repairing it may take a little longer. You likely won’t be able to get a credit card right away, but within the first six months, you should be able to qualify for a secured card. With this type of account, you put down a cash deposit that serves as your credit line and make regular payments towards the balance each month.

Secured cards tend to carry higher interest rates and fees than traditional cards, but they’re a good starting point if your score has taken a serious nosedive. Paying the balance in full and on time each month will help turn things around. Eventually, you should reach a point where you can get approved for a traditional card, but you don’t want to rush out and apply for a handful of them all at once. Too many inquiries can actually hurt your credit, so it’s best to take a slow and steady approach.

Photo credit: flickr

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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