Family Law

Establishing Credit After Your Divorce

By Ben Stevens

Divorce can be a scary time, particularly for those that do not have a financial credit history.  For instance, consider the situation where one spouse has not worked in quite some time and all of the credit accounts have been listed in the other spouse's name.  During and after the divorce, the first spouse may encounter significant difficulties when trying to obtain credit.  People finding themselves facing such a situation should consider the following advice from certified public accountant, author, and financial consultant, Sally Herigstad:

• Remember existing joint credit that might already exist in your name.  If your name is listed on joint credit card account or a joint mortgage, then the activity on those accounts is reported on both of your credit reports.  For credit reporting purposes, it doesn't matter who applied for the credit or who made the payments, as any creditor who reports the credit history of a joint account must report it in both names.
• Also consider any accounts where you are listed as an authorized user.  If your spouse opened an individual account and added you as an authorized user, the creditor must still report the credit history of the account in your name as well as in your husband's.  However, some new credit scoring models exclude information from authorized user accounts.
• Acquire your own credit account.  If you have income, such as alimony, you can apply for an account in your name only -- even if you don't have your own earned income.  Steer clear of cards or loans with a very high interest rate -- especially if you might not be able to pay the balance off every month.
• Also consider other options.  If you have trouble getting your first credit card, consider getting a secured card. These cards require you to make a deposit with a bank or credit union and then gives you a credit limit equal to the amount you have on deposit.  You may be able to get a car loan without too much trouble, since it is secured by the car itself, which lowers the risk for the lender.
• Protect yourself on any open joint credit accounts.  Remember that both you and your spouse are liable for the total amount of debt on any joint account.  Therefore, you should consider all options available with regard to these accounts, including:  closing the account altogether; putting a freeze on the account until you both agree on who owes what; making minimum payments on the account; and/or changing the account from a joint account to an individual account.

Source:  "Establishing Credit After Divorce" by Sally Herigstad, published at CreditCards.com.

Full post as published by SC Family Law Blog on October 01, 2008 (boomark / email).