Separation and divorce can be difficult enough without also having to worry about the effect on your finances.
Does Divorce Affect my Credit Score?
In isolation, being divorced does not affect your credit score. Your credit report does not take into account the legal status of your relationship.
However, divorce can massively disrupt people’s finances, which in turn can affect their credit scores if they start failing to make payments for bills and loans.
Additionally, many people have financial agreements in both spouse’s names when married, whether it be a utility bill or a mortgage. If you take out shared finance with someone else you are now financially associated, which does show up on your credit report.
Joint Accounts
As long as a joint account stays open with both names on it, both parties are legally responsible for it, including responsibility for any payments of bills and subscriptions.
If you break up with your partner or spouse and agreed they will make these payments and they fail to, you will also be held responsible for the missed payments.
Therefore, it is important that you close any shared accounts, or convert them into individual accounts. When divorcing, you will have to sort out the division of assets before doing this, which you can use a divorce mediator or solicitor to help with.
When you do close any joint accounts, make sure you make note of any direct deposits so that you can contact the parties involved to change the transactions to your account.
What is a Financial Association?
If you have joint finances or a joint credit account with another person, you are financially associated.
Financial association is not bound to marriage or cohabitation. Marrying someone or living with someone does not automatically make you financially associated. Because of this, when a relationship or marriage ends, the financial association does not automatically end with it.
Financial Associations and your Credit Report
Financial associations can have a big impact on your finances. This is because lenders can take into account the credit reports of your financial associations as well as yours. Any negative information against your financial associations’ names can therefore hurt your credit applications.
Financial associations will stay on your credit report indefinitely unless you request for them to be removed. If you break-up with someone or get divorced, your credit report won’t automatically update itself and remove your ex as a financial associate.
It’s important to note that financial associations cannot harm your credit score. Your credit score is personal and belongs completely to you to reflect your own creditworthiness. So, financial associations cannot affect your credit score itself, just the outcome of any credit applications you make.
Once you remove someone as a financial associate, their credit history doesn’t have a permanent mark on your finances where they’ve been able to lower your credit score.
Out with the Old and in with the New
Check all of your accounts even if you think they are solely in your name. If your ex is listed as an authorised user, ring the relevant account provider to remove them.
You can check your credit report to see if you want any financial associations removing. If you do, you should submit a disassociation request to the relevant credit agency.
The credit reference agency then has 28 days to respond. Therefore, it is best to remove associations as soon as you divorce or separate, rather than waiting until you are trying to apply for credit.