If you are like most divorcees, you may worry about what your financial outlook is following the breakup.
According to U.S. News, divorce can put a strain on your finances. However, you may be surprised by how the divorce impacts your credit score.
Changes in the overall balance
One of the first steps to managing your credit is to list all the accounts, including joint, authorized user accounts and accounts you own. Some people choose to close all joint accounts or take their spouses off the card. If you want to close the accounts, discuss with your lender the possibility of opening up an account of your own. During a divorce, if you keep joint accounts, you both remain responsible for the debt. You can split the debt, each paying a certain amount.
Your account balance depends on the accounts you choose to close and the debt you choose to keep. For some people, the balances may shrink. However, for others, the balances may increase because of compound interest when you only have one person paying the bill.
Changes in the utilization ratio
When you lose credit cards, it alters your utilization ratio. Lenders do not look at your income or your marital status. However, when you close a credit card, your utilization ratio goes up. When your utilization ratio increases, it can also cause your credit score to drop.
During a divorce, you can find ways for the divorce to have a small impact on your credit score, but you have to work with your partner to ensure that neither of you loses your good standing.
