Headed for divorce? Move quickly to shore up your credit.
September 12, 2015
By Mischelle Weaver, Director of Mortgage Loan Services
According to the GOA Retirement Security 2012 PDF, splitting one household into two reduces everyone’s income: Men end up with 20 percent less, on average. That’s bad enough but women’s households typically earn 40 percent less after divorce.
You can’t singlehandedly change those statistics. But you can strengthen your position considerably by making three key moves:
1. Get credit in your own name
The minute you think you might divorce – and, ideally, do this anyway, because your spouse could die – establish credit in your own name with a small loan or a credit card. You may have to start with a secured card, where you put down a deposit and have a tight initial credit limit.
If you are expecting a court order for alimony or child support, that alone won’t magically solve your problems. You’ll need credit to get a mortgage, rent a home, open credit cards, put utilities in your name and maybe even to get a job.
If you have debts, pay them off as soon as possible. If your credit is bad, get free help from the National Foundation for Credit Counseling. Beware of so-called credit-repair services. Some of them are scams.
The higher your FICO score the easier and cheaper it is to borrow. Aim for at least 720, although people can qualify for an FHA mortgage with a score of 600 and a down payment of 3.5 percent.
2. Don’t let a single payment slide
People get into bad spirals of not paying bills while they fight it out, destroying their credit. Be careful that even as the stress of a rocky relationship plays out, do not let one payment go delinquent, especially on the mortgage — even if it’s not your responsibility to pay or you won’t be the one keeping the property.
Excuses like “I was going through a divorce and so-and-so was supposed to pay it” won’t fly unless the court ordered your spouse to pay and documented it in writing before a payment was delinquent.
The markets are very sensitive to good credit, especially on mortgages. If your name was on the mortgage and the payments were on time, even without other credit, your FICO score probably will be decent.
3. Establish a realistic timeline
Pay every bill in full and on time and your score will improve. Try to remove your name from joint credit cards so any credit problems your ex incurs won’t affect you.
Still, it takes time for credit to build, so expect frustrations. Suppose a court awards you the family home. You may have to refinance the mortgage into your name, which requires you to have a track record of on-time payments and an income history.
Even with plenty of money, a woman sometimes can’t qualify for a mortgage on her own home. I had a client who’d been divorced two months and was getting $10,000 a month in court-ordered alimony and child support. But with no job, no other income and only two months of support payments, she had difficulty qualifying. Depending on the case, lenders typically want to see your income from at least six months and usually a year.
The customer was amazed. “But the court ordered him to pay!” she said. Courts order people to do lots of things. That doesn’t mean they’ll do it. She had savings, which helped, though, and we could show that if he got behind she could still make the payment.
Overall, the fact that a divorce takes time to play out can work in your favor here. Doing the work today to build and fix your credit picture can pay off greatly as you move into your new, independent, life.
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