Divorce often changes everything, especially your financial situation. And unless you were the ex-wife of Michael Jordan ($150 million settlement), Steven Spielberg ($100 million settlement), or the recently divorced Heather Mills ($80 million settlement), you may be feeling the financial fallout of living on less money.
As if divorce isn't enough of a kick in the pants, you also have to be alert to what could happen if your former "love bird" turns into a vulture post-divorce.
When it comes to outstanding balances on credit — even when it's part of your divorce decree that your ex is responsible for making payments if your accounts are jointly owned — you are still legally responsible for payment when your name appears as a co-signer on the account...regardless of what the court says.
How can this be? Well, when you applied for joint credit, you both assumed repayment responsibility. And because of that assumption of debt, the responsibility will not simply be wiped away because you are no longer married.
No one knows you better than your ex; most often they have access to your favorite passwords, your account numbers, driver's license, and even social security numbers — all the pertinent information necessary to assume your identity and wreak havoc on your credit score.
So as soon as you begin the separation process, and most certainly when divorce is inevitable, you must protect yourself by:
• Getting a fraud shield put on your social security number - this is a service that you can get from the three major credit reporting agencies which will alert you via phone or mail if anyone is attempting to get credit in your name - including you.
• What this means is a credit application will not be reviewed or approved unless you have given verbal authorization to do so. If you are not reachable by phone, they will attempt to contact you again with a 24-hour period. If they are not able to get your authorization verbally, a letter will be sent for you to respond to.
• You also want to close any accounts that you jointly hold. It's not good enough to just have the divorce decree, and most credit cards or joint accounts will not allow you to simply remove your name from the account when you are no longer together.
Even if things are friendly between you and your ex, this is a step you don't want to skip because your credit score (the 3-digit number that's tied to just about everything these days) could still be negatively impacted if your information remains connected to his. Here's why:
• Your ex could request a credit line increase and not have to get permission from you
• Your ex could miss a payment or two thinking its not a big deal
• Your ex could make modifications to the account
• Your ex could stop paying the bill
All of these scenarios are financially dangerous because your credit score is based on 5 factors, which break down as follows:
1. Payment history accounts for approximately 35% of your credit score.
2. Current debt level accounts for 30% of your credit score.
3. How long you've had credit accounts for 15% of your credit score.
4. How often you apply for credit accounts for 10% of your credit score.
5. Types of credit you have (also known as your "credit mix") makes up the remaining 10% of your credit score.
Because the change in your financial status may have lowered your credit score, you want to also consider taking the following action to get back on solid financial ground:
1. Apply for a secured credit card which will allow you to build credit in your own name by securing a set dollar amount with the credit card company (btwn $500-$1000) and as you use and pay on-time-over-time they will increase your limit. Two resources are Choose Credit Wisely and Credit.com.
2. Get a no-strings-attached copy of your credit report from Annual Credit Report. You are entitled to one copy per calendar year from ALL 3 credit reporting agencies. Plus, if you are denied credit (in writing), you can get a complimentary copy of your credit report for up to 60 days after the denial.
3. If your ex has ruined your credit and opened unauthorized accounts in your name, you may want to consider applying for a new Social Security number so you can rebuild your life and put yourself in position to get a mortgage, purchase a car, and have the flexibility to do other things. If you want to learn more about getting a new SS number and determining if it's right for you visit the FAQ at the ID Theft Center.
4. Since it's important for you to know exactly what your credit report says about you post divorce I strongly recommend you check out Experian. It's a great, low-cost resource that offers you a copy of your credit report, an analysis of your credit situation (with suggestions on how to improve it) and your credit score.
There is no need to feel helpless if your ex has ruined your credit. Follow the steps and suggestions I've provided so you can get reclaim your financial life!
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