A credit score is a number between 300 and 1000 that shows how creditworthy someone is. Lenders use these scores to determine the likelihood, or not, of an individual making payments on time and whether they are a good risk. Essentially, the higher the score, the better you look to potential lenders. But does divorce affect those scores, and will it impact on any credit applications you make? Read our guide to find out.
A credit score is a number between 300 and 1000 that shows how creditworthy someone is. Lenders use these scores to determine the likelihood, or not, of an individual making payments on time and whether they are a good risk. Essentially, the higher the score, the better you look to potential lenders. But does divorce affect those scores, and will it impact on any credit applications you make? Read our guide to find out.
If you have need help with your divorce and you feel you need legal advice, contact specialist family solicitor Mark Heptinstall of Slater Heelis Solicitors. He is recognised as a ‘Leading Individual’ in The Legal 500 and ranked in Chambers UK, and is described as having “the amazing ability to bring calm into troubled waters”.
What is a credit score based on?
A credit score is based on your credit history which includes:
- Your total levels of debt
- Your loan repayment history
- Whether you have a mortgage
- The number of bank accounts you have
Ensuring you have a good credit score after separation and divorce is vital, as it will determine how easy or difficult it will be to rebuild your life.
A good credit score differs depending on the credit reference agency:
- Experian: Good – 881-960, Excellent – 961-999
- Equifax: Good: 420-465, Excellent – 466-700
- TransUnion: Good: 604-627, Excellent – 628-710
Maintaining a good credit score involves making timely repayments, keeping low credit card balances, and making minimal new credit applications.
How does divorce affect a credit score or my mortgage application?
It is important to state that although divorce doesn’t affect a credit score directly, many couples notice a drop in their scores afterwards. How so?
The main reason divorce affects a credit score is, in large part, because of joint credit taken out with an ex whilst you were together. Taking out such products is usual during a marriage – you might have your joint names on a mortgage, have joint bank accounts, or have taken out joint loans. However, these can cause issues after divorce. There are two main related problems: how joint debts are handled, and something called financial association.
Many divorced couples retain joint debts, typically in the form of a mortgage. When you take out any form of joint debt, each party is legally responsible for the debts and repayments. Therefore, if one party fails to keep up with their share of the repayments, the other is legally obligated to cover their share. This doesn’t tend to be an issue when you are living together, but when you are separated and communication limited, it becomes more difficult to seize on any problems paying. If the payments had not been made, and you were unaware of the situation, your first alert may be noticing your credit score has gone down. It’s also not within the realms of fantasy to think that a vindictive ex could intentionally ignore debt repayments to damage your credit score.
The other problem when taking out joint credit, is financial association. This is when you become financially connected to your spouse – to paraphrase wedding vows, for better or worse. Being linked in this way means that you show up on each other’s credit report, so that when you apply for credit, your ex’s score will be considered by lenders together with your own, and vice versa.
Financial association continues after divorce, and this remains so even after you have settled any joint debts, such as repaying mortgages in full or closing a joint bank account. This won’t be an issue if your ex has a strong credit score, but if they are profligate and financially irresponsible, you might not be as lucky. It is not ideal to be in a position where your ex’s financial circumstances have a direct impact on your credit score which is completely outside your control. But there are ways to protect your credit score.
How can I protect my credit score after divorce?
There are several things you can do to protect your credit score following divorce. These include:
- Close or separate your joint accounts
Pay off any overdrafts and close the joint accounts down. If that is not possible, ask your lender or bank if you can convert or reassign the account into your sole name instead
- Be civil with your ex (if possible)
Try to work together to pay off debts and close accounts. Hopefully, it will mean that your ex will be less inclined to do anything that would intentionally damage your credit score. Until your finances are separated, you are both tied together.
- Obtain a notice of disassociation
When you no longer have any shared joint finances with your ex, you can ask credit reference agencies to remove them from your credit report. This is called a notice of disassociation. After this has been approved, you will no longer be financially associated and your ex’s financial circumstances and choices will no longer affect your credit score.
Can failing to pay child maintenance affect someone’s credit score?
You may be surprised to learn that if a parent fails to pay child maintenance payments as mandated by the Child Maintenance Service (CMS), it can adversely affect their credit score. Since March 2015, the CMS has shared information about an individual’s payment records with credit reference agencies. This happens when a liability order is made against someone, which can happen when one parent takes the other to court for not paying the required amount of child maintenance.
Parents who do not make the necessary child maintenance payments will therefore be affected in the same way as those who do not pay off other debts. As a result, they may end up having loans, mortgages, phone contracts, and other forms of credit refused in the same way as if they missed payments in respect of a credit card or mortgage.
How do I rebuild my credit independently following a divorce?
If your credit was tied to your spouse, rebuilding or establishing your credit independently can be a challenge following divorce. Here are our tips:
- Start small and build
Improving a credit score takes time and you may have to start with a small credit limit with a higher interest rate. Use your card for a few purchases and always pay your bills on time. After six months, you may be able to be approved for a better deal. If not, keep managing your account responsibly and try again after a few months.
- Find a friend or family member who will sign as guarantor
If you need help getting approval for a loan, consider asking someone close to you with established credit to act as guarantor. If your credit improves, you may be able to refinance on your own.
- Maintain a positive payment history
Payment history is the single biggest factor in determining your credit score. Even one late payment can significantly set you back, so make sure you pay every bill on time.
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