Lawyer Explains If Divorce Has An Affect On My Credit in Phoenix

lawyer consulting with a man

People considering divorce in Arizona usually have many questions, including how divorce will affect their credit. While divorce will not directly impact your credit score, the process may harm your credit worthiness. The best way to understand how divorce can affect your credit and how to maintain your standing is to consult an experienced divorce attorney.

At Cohen Family Law, we are here to help you navigate the divorce process and advise you on how to protect your financial future. Because a good rating is essential for obtaining credit cards, auto loans, and mortgages, you must prepare for the next chapter in your life. When you meet with us, we will help find solutions and protect your interests. Contact our office today for a consultation.  

Potential Issues in a Divorce That Can Impact Your Credit

Several scenarios can affect your credit during and after divorce, like going from two incomes to one. While a drop in household income will not affect your credit rating, it can impact your ability to borrow money. That is because banks consider your debt-to-income (DTI) ratio when deciding to extend credit.  

DTI is your total monthly debt payment divided by your gross monthly income. If you are applying for a mortgage, lenders prefer a debt-to-income ratio of lower than 36 percent, with no more than 28 percent going towards servicing a mortgage or paying rent. Generally, 43 percent is the highest DTI a borrower can have to qualify for a mortgage. 

In short, your DTI may be higher after divorce, affecting your ability to qualify for a mortgage. 

Other issues that can affect your credit in a divorce include: 

Jointly-held Debts

Another potential issue in a divorce is whether your name appears on a debt your spouse is responsible for paying. Suppose you have a joint credit card that the court ordered your ex to pay in the divorce decree. If they make late payments or fail to pay, that will affect your credit. Creditors can also come after you even if the court ordered your ex to pay the debt.

Refinancing Your Home

If both spouses are on the deed, you need to refinance the mortgage to remove your spouse’s name from it. The bank will look at your income and credit score to determine whether you qualify for a refinance. But you will take on more debt and raise your debt-to-income ratio if you refinance. 

Undisclosed Debts 

You and your spouse must disclose all your debts during a divorce. Your credit can be affected if your spouse fails to disclose all their debts. A vindictive spouse may even open new credit accounts in your name just to ruin your credit. If you have joint accounts, your estranged spouse may make purchases while the case is pending and drive up your debt level. Unless you close your joint accounts or remove your name, you and your spouse will be responsible for any additional charges. 

Creditors Reducing Your Credit Limits

Creditors often check to determine if there have been changes in income for their customers. If a creditor finds that your income fell after your divorce, it may reduce your credit limit, increasing your DTI and lowering your credit score.

How to Avoid Damage to Your Credit In A Divorce

You can take steps to protect your credit during and after your divorce, such as:

  • Gather your important financial documents, including tax returns and recent billing and account statements before the divorce
  • Consult a financial professional for advice about the impact of divorce on your finances
  • Request credit reports from the three major credit reporting agencies to determine if there are unknown debts
  • Close your joint credit accounts and open new ones in your name 
  • Freeze your credit cards so that no additional charges occur during your divorce

In short, separating yourself financially from your spouse can help avoid issues that affect your credit rating and financial future. Here, it is wise to get help from an experienced Arizona divorce attorney to locate all assets and debts and start the divorce process. Your attorney can also handle all the details of your case, including negotiating spousal maintenance, child custody, child support, dividing the marital property, and other issues in the divorce. 

Get Help From Cohen Family Law

Careful planning can help to avoid damage to your credit before, during, and after divorce. When you work with our experienced divorce attorneys, we will guide you through the process, protect your interests, and work to achieve a positive outcome. Contact our office today to learn how we can help.