Divorce can start a chain reaction in your life, trickling down to affect components you might never expect, but will it affect your credit score? Legally, the answer is no. Divorce is the dissolution of a marriage contract and does not directly impact your credit score. However, several related pieces may impact it depending on how you divide assets and debts. This possibility is one of the many reasons you need an experienced Sherman Oaks divorce lawyer to help you consider not only the short-term effects of your divorce agreement, but the future ones as well.
At Diarian & Bociaga Family Law Advocates, we will help you fight for terms that benefit you and minimize your financial risk.
Adverse Effects of Divorce on Your Credit Score
The potential for adverse effects on your credit score depends heavily on how complicated your financial situation is at the time of divorce. This includes the amount of debt you have, how much and what kind of property is in both names, and what you have in the way of assets or equity in that property.
Division of Bills
One of the most common ways a divorce can negatively impact your credit occurs when one spouse is charged with paying joint debt or bills that have yet to be transferred out of your name. An example might be your ex failing to pay the mortgage while you wait for the house to sell. If your name is still on the loan, this can affect your credit. Similarly, it can take time to refinance vehicles that are in both names.
Refinancing
Sometimes, part of the agreement means refinancing marital property to remove your spouse’s name or transfer it into yours. While this process can simplify debt repayment, the application process can mean a hard inquiry on your credit, dropping it a few points for a period of time.
Credit Utilization
Your credit score is affected by several factors. Timely payments is one of them, but also your utilization of revolving credit. When or if your household income drops, you may find yourself with less credit available, which can increase your utilization percentage, affecting your credit score.
Positive Effect of Divorce on Credit
The financial fallout from divorce is not always bad. For example, many couples choose to sell the marital home and use that money to pay off debts. This can allow you to start your new life with fewer liabilities and low credit utilization.
Additionally, your credit will no longer be tied to someone else. So if your spouse had poor money management skills or excessive spending habits, you are in a better place to be fiscally smart and more in control of how you spend money and pay bills.
The goal of divorce in California is a fair and equitable split, which isn’t always 50/50. When you work with a skilled family law firm like Diarian & Bociaga, we can help you navigate some property, asset, and liability division hurdles with creative strategies to give you the best possible foundation for your new life.