Going through a divorce can be one of the most stressful and emotionally draining experiences of your life. Your credit score is probably the last thing on your mind, but you do need to make sure you're working towards a healthy financial future in the midst of the separation from your spouse.
Some people are left with a very poor credit score after divorce because they find their ex didn't pay bills on time and ruined the credit of both parties. Others simply don't have any financial accounts under their own name. Whatever your situation, there are some effective ways to build or re-establish credit after divorce.
Here are five ideas to help you get started.
1. Pull your credit reports
First, find out where you stand. The only way to know the status of any joint credit accounts, or accounts that were formerly maintained in both of your names, is to check your most recent credit reports from Equifax, Experian and TransUnion. You can get them once a year at no cost through www.annualcreditreport.com.
Scour your credit files for any notations of late payments or collection accounts. Those are major red flags that will jeopardize your chances of qualifying for a new credit card or obtaining credit in your own name.
As important as it is to be aware of the information in your credit files -- especially after divorce -- a surprising number of adults in the U.S. don't take the time to review their credit history.
A survey from the National Foundation for Credit Counseling found that roughly seven out of 10 Americans don't check their credit reports each year, as they're entitled to do free of charge under federal law. Overlooking this right is a big mistake. But it's one that people don't often realize until they have relationship troubles.
"The fact of the matter is that people bring financial baggage into a relationship, and often don't deal with it until problems arise," says NFCC spokeswoman Gail Cunningham. "Perhaps that baggage comes in the form of a poor credit rating, significant debt, or no experience managing money."
2. Fix mistakes on your credit reports
After you receive your credit reports, make sure all the information about you is accurate, including your credit history, employment history and other personal information. Creditors and banks can make mistakes when reporting data to the credit bureaus, and only you can step in and request corrections. Each of the three credit bureaus provides an online dispute form.
Just realize that even if your divorce agreement says that your ex is supposed to pay certain bills, if he or she doesn't, you're still legally liable for those debts.
3. Don't keep joint credit obligations with your ex
Even if you have an ongoing financial relationship with a former spouse -- perhaps he's paying child support or she's paying alimony -- it's a good idea to break ties from a credit standpoint.
It's way too risky to keep things like joint credit cards or a mortgage in both parties' names, says Lisa Hanson, Senior Financial Professional at Firstrust Financial Resources in Philadelphia. Hanson specializes in working with divorcees.
"It's best to split the accounts because managing credit after you divorce can be very tricky, especially nowadays with all the credit restrictions and how difficult it is to get things like new mortgages," says Hanson.
Case in point: one new rule affecting those applying for a credit card is that banks and credit card issuers must only consider the applicant's individual income, not his or her overall household income. This means that if you obtained credit cards in the past thanks in part to your spouse's income, you may now have a tougher time qualifying for credit on your own.
4. Open a secured credit card if necessary
If your income is too low, or if your credit has taken a serious nosedive after a breakup, one of the best ways to rebuild it is to get secured credit card. Secured credit cards can even help you if you have a "thin" credit file or no credit in the past.
However, secured cards do come at a price. You need to pay for the amount of your credit limit by putting money into an account. For instance, if you put up $500, your credit limit will be $500. You will also need to prove that you are responsible with managing your credit by maintaining a low balance and paying your bills on time. This process will take some time, but is a great way to kickstart your credit-building activities.
5. Pay all credit obligations on time
Finally, one of the best strategies for rebuilding credit -- even if yours has suffered from divorce -- is to simply pay all outstanding obligations in a timely fashion. According to FICO, the company that created the FICO credit score, 35 percent of your FICO score is based on your payment track record.
So if you do nothing else, do make a point to consistently pay your bills on time. By doing so, you should see your credit score rebound and recover over time, even if divorce initially takes a financial toll on you.