You might have heard that divorce can damage your credit. While the act a divorce may have no direct impact on your individual credit score, there are several scenarios that your credit score can be harmed during and after the divorce process. It is important for you to understand the potential issues that can arise in a divorce that could negatively affect your credit score so that you can guard against them. The Cantor Law Group can work closely with you to help you to protect your financial interests during and after your divorce.
When you get divorced, you may go from two incomes to one. While a drop in income will not directly affect your credit score, it can cause a few situations that can. Banks consider your debt-to-income ratio when they decide whether to extend credit to you. If your debt-to-income ratio is higher after your divorce because your income has dropped, this can make it harder for you to secure new credit.
Another potential problem occurs when your name still appears on a debt that your ex-spouse is responsible to pay. For example, if you had a joint credit card account that the court ordered your ex to pay in your divorce decree, your credit could be harmed if your ex-spouse makes late payments or ceases to pay it altogether. Creditors are not a party to your divorce, and they are not obligated to follow the court’s orders. This means that they can come after you for payment even if the family court judge ordered your ex to be responsible for the debt.
Having to Refinance Your Home
If you and your ex are both on the deed to your home, and you take it in your divorce, you will have to refinance the mortgage to remove your spouse’s name from it. When you apply to refinance your mortgage in your own name, the bank will look at your income and credit score to determine whether you qualify for a loan on your own. Mortgage applications also require a hard credit inquiry, which will cause a temporary drop in your credit score. Refinancing your home in your own name will also add a substantial amount of debt and affect your debt-to-income ratio.