Can divorce affect your credit rating?

Delinquent or missed debt payments, not divorce, cause a poor credit rating.  But often spouses share accounts and credit.  From the bank’s perspective, joint accounts result in joint liability.  

So if spouses have a mortgage, line of credit or credit card in both their names, the bank will hold each spouse personally and separately liable for the debt.  

The banks don’t care who pays them, so long as they get paid. So if one spouse decides to stop paying the bills, both spouses’ credit rating can be damaged. 

Know which accounts you have full and joint liability over

In some cases, spouses don’t know if the account is sole or joint.  For example, the credit card can be in one spouse’s name and the other spouse has a secondary card.  The primary cardholder is generally the only person liable for the debt, even though both spouses use the credit card.  

In other cases, one spouse will give the other spouse signing authority over an account with permission to make withdrawals and write cheques.  Again, granting a spouse signing authority does not transfer liability for that debt.  

Another example is utilities for the home.  Hydro, gas, water, telephone, cable and internet accounts are usually in one spouse’s name.  If these bills don’t get paid, the account holder’s credit rating will suffer.  Car leases are large debts and are often in only one spouse’s name, irrespective of who has been driving the car. 

So what to do? 

Correct errors on your credit report and start documenting your debts upon separation

At the time of separation, make a list of every debt and account held by both spouses.  Then begin investigating in whose name(s) they are in.  Obtain a copy of your credit report from Equifax and Transunion. Review your credit report and determine which accounts are sole, joint and/or list your spouse as an authorized user. There are plenty of stories of spouses discovering debts that they never knew existed.  

Don’t stop there.  

Contact each financial institution to ascertain who the registered debtor(s) are. Correct any errors on your credit report by notifying the credit reporting agency immediately.

Begin documenting all your debts as of the date of separation onward.  This will track if the other spouse is increasing family debt during your divorce.  

Where possible, close joint accounts or at least ask the bank to suspend activity so that no further debt can be incurred.  Closing an account may lower your credit score, but missed payments will damage your credit score.

Credit can take years to recover once lost

Credit is easy to obtain and easier to lose.  Once lost, it can take years to repair.  Privileges such as credit cards, apartment rentals, car leases and even new employment are offered after your credit report is examined for your history of financial responsibility.  

Many spouses discover too late that their credit score was damaged during separation because of the actions of their spouse.  In most cases, there are steps that divorcing spouses can take to prevent damage to their credit score.

Avoid spiteful expenditure on your bank accounts that may hurt your credit rating by formalizing your separation early. SplitEasy has simplified the divorce procedure, with a service that makes it easy to file for divorce online. Learn how our service works here.