Divorce and separation often focus on the division of assets: who gets the house? Maintenance for the children? However, many couples must also decide what happens to the debts, in joint and sole names, and ask: will divorce affect my credit rating? How are divorce and debt linked?
Changing the legal status of your relationship does not affect your credit score directly, whether you are moving in, getting married, forming a civil partnership, separating or getting divorced.
However, it is likely that during your relationship, you have taken out joint credit, be it a mortgage, a bank account with an overdraft facility, names on a utility bill or a loan. And if this is the case, your credit ratings will affect each other.
This applies whether you do or do not separate your finances. If you do close down joint accounts, this can negatively affect your credit score. And, if you leave the accounts open and don’t get rid of the financial association you share with your ex-partner, then their credit score may be considered alongside yours when you apply for credit in the future.
When you and your partner apply for credit together, the lender will look at your credit files and scores. This is because, with any joint credit, each of you is legally responsible for the debt and payments. So, if one of you cannot keep up with your share of the debt, the other is legally obliged to make the payments.
The shared debt will show up on your credit report (it is usually under the heading financial associations or financial connections).
Once listed, it may mean that in the future, your ex-partner’s credit report will also be taken into consideration on any future applications you make, even if it is in your sole name. And the association will remain if you have those joint debts. Getting divorced or separating will make no difference.
This is the core reason why divorce affects a person’s credit rating. Your first assumption may not be that your former partner’s credit will impact your access to credit, in which case you may get a nasty surprise at some point in the future—unless you take appropriate action now.
Divorce, child support and credit
Another way that divorce affects credit is if a parent fails to pay child maintenance.
Since March 2015, information about people’s payment records has been shared with credit agencies by the Child Support Agency (CSA) and Child Maintenance Service (CMS). This happens when a ‘liability order’ is made against someone. Such orders occur when one parent takes the other to court for not paying the required amount of child maintenance.
Parents who do not make their required payments will feel the same impact as people who do not pay other debts. As a result, they may end up having loans, mortgages, phone contracts, and other forms of credit refused as a consequence—just as if they missed payments for a credit card or mortgage.
How common is bad credit after divorce?
According to a survey carried out by Experian, nearly seven million Britons may have experienced financial difficulties following the end of a relationship.
Forty-seven per cent of the people surveyed reported credit rating problems and similar difficulties due to a previous relationship. A full third said they were still experiencing problems three years on.
The ratings agency reported that if people became involved in joint financial arrangements with partners, such as joint loans or bank accounts, they would still be listed as “financially associated” even if the relationship subsequently ends. If their former partner subsequently runs into financial difficulties, this will also affect their credit ratings.
It can be painful to think about finances in the middle of a break-up, but it can be the first step towards regaining your financial independence. A formal “financial disassociation” ensures that financial arrangements are no longer linked to former partners.
How do I separate my credit after divorce?
Until all joint debts are paid and accounts are closed, you’re still financially linked, but you do have a couple of options.
Reassign joint accounts
If possible, sit down with your ex and get a clear picture of what you owe and who will take responsibility for what. You can then have the joint accounts transferred to the person who is solely responsible for the payments. Talk with our top family lawyers about mediation and other ADR options if this would not be possible.
Refinance or sell jointly held property
Often the biggest asset, you may need to refinance to remove one name from the mortgage or sell the home and divide the procee
Don’t fall behind on payments
Money is likely to be tight as you separate but keep paying the bills. If you don’t have enough money to keep up payments on your loan(s), credit card(s), bills and mortgage or rent, it’s important to prioritise which you can pay. Don’t ignore your debt problems. They will not go away.
Once you no longer share joint finances, you can ask credit reference agencies to remove them from your credit report. This is known as a notice of disassociation. Be prepared to provide proof that your financial connection has ended.
What is a credit score?
A credit score is a number between 300–850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
A credit score plays a key role in a lender’s decision to offer credit.
The FICO scoring system is used by many financial institutions.
Factors considered in credit scoring include repayment history, types of loans, length of credit history, and an individual’s total debt.
One metric used in calculating a credit score is credit utilization or the percentage of available credit currently being used.
It is not always advisable to close a credit account that is not being used since doing so can lower a person’s credit score.
So, do you need ‘marriage solicitors near me’? If you are going through a divorce and need help—whether that’s because of an impending court date or because you’re unsure how to separate credit after divorce—talk to Stowe Family Law today. Our family law solicitors have helped thousands of people find their way through complicated divorces.
Get in touch today if you’d like to arrange a family law consultation to discuss your options.