Credit Repair After Divorce – Risks, Dangers and Safety Precautions

ElitePersonalFinance
Last Update: February 6, 2021 Credit Report

People going through the divorce process are often too caught up in emotional issues to pay attention to the effect the divorce could have on their credit. The divorce’s potential impact on both parties credits’ is overlooked.

How Can Divorce Hurt Your Credit?

A divorce does not negatively impact either party’s credit score. The credit issues most often arise from joint accounts and particularly co-signed loans, which are not paid on time or not which are not paid at all. These will be problems for seven years, the period that negative information remains on the credit reports. Credit repair after divorce is not an easy process.

Credit scores are based on the amount of the total credit utilized and on the record of timely payments. If a monthly payment on a co-signed loan is made 30 days or more past the due date, this will adversely impact the credit score. This can happen when the parties are arguing over financial matters.

Risk #1 – One User Clearing Out The Account Funds

A possible problem arises when one party utilizes all available credit without the other party’s knowledge and then refuses to make the required monthly payment.

This could be prevented if the credit company was contacted and asked to limit the credit line to the amount owning. Otherwise, the party left with this debt could face many problems, not the least of a damaged credit score.

It’s best to close the credit cards when the divorce is agreed upon. That way, no feelings of greed could come between you and your money. But keep in mind that closing these accounts will affect your credit score.

Risk #2 – Co-Signed Loans Defaulting on You

Co-signed loans are another potential problem. If one party co-signed a loan for a car or a boat or virtually anything, then the co-signer will be held responsible for the loan if the maker defaults. This will likely be noted on the cosigner’s credit reports and monthly payments.

However, if there is more than a 30-day late payment, this will definitely affect the credit score.

Many co-signers who find themselves in this unenviable position will balk at paying the loan payments using the untenable logic that they didn’t buy the product. Co-signers may learn that they signed for a loan due in full upon the maker’s default. This means that the loan company can sue the co-signer for the total balance.

Many divorced people believe that their lawyer’s brilliant requirement convinced the judge to put into the final divorce decree ordering the other party to pay all debts, or part of them will save them from having to pay. This provision means nothing to creditors because it does not bind them. They are free to go after either or both parties. If this provision is ignored, then the only enforcement action available is to file an action in court.

This is an expensive process, and meanwhile, the debts remain unpaid. The court may enforce the decree, but the credit score’s damage will remain there.

Risk #3 – Refinancing a Loan Lands One of You in Deep Debt

Refinancing a loan to lower the payments may be possible if both parties’ credit scores are high. Refinancing a loan to shift the liability to the other party is difficult. If both sides are responsible for the loan, then the creditor will be very reluctant to make a new loan with just one signer.

The solution to all of these problems is to keep your eye on all credit accounts and make sure those joint accounts and your individual accounts are paid on time. Please make every effort to convince the other party that it is in their best interest to make monthly payments on time.

How Can Credit Monitoring Save You Time?

You shouldn’t spend any money on credit monitoring. Many companies offer it for free. Credit monitoring can help you see what happens with your accounts daily. Credit monitoring companies set fraud alerts, which require lenders to double prove the identity of the person who creates all of the accounts in your name (whether from your spouse or not). You can also set a credit freeze, which prevents creating new accounts in your name. Actually, you should apply credit freeze for a time while the divorce is process is on.

The steps mentioned above will help, even if this is not your spouse but rather a random fraudster attacking you. During the divorce, most people often don’t pay attention to their accounts. Fraudsters are tricky. Say someone who knows your situation can do this.

What Legal Protection Do You Have?

This is mostly a civil court matter. There is no way to prove criminal intent easily. If there is a substantial amount stolen, bigger charges are laid against the defendant. Settling out of court is unlikely considering the negligence involved in defrauding the partner. Your best chance is to bring it up in divorce court to get the divorce agreement to include repayment for what you lost. If it messes up your credit score, you could ask for further reimbursement.

Make sure to get as much paperwork together as possible. If you have any messages with your partner about where the missing funds went, include those when representing yourself in court. Keep in mind pursuing this is only a good idea if you don’t have to spend more than you are trying to get back. You could always lose the case or have it thrown out for a pathetic reason, and then you wouldn’t be getting compensated at all.

Fixing Your Credit Score 

Once your credit score gets damaged by your partner performing unauthorized actions with any of your credit accounts, you can dispute it to get your score put back up. This is easier done if you have a police report and an FTC Identity Theft Affidavit. This will be enough proof to get the credit reporting agencies, Equifax, Experian, and TransUnion, to erase the damage caused in the fraudulent time frame. But your score might not fully recover right away. You’ll want to discuss this situation in-depth with whomever you speak with as well. This will help you clarify your options and what you can’t fix.

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