No one ever plans on getting divorced (I hope!).
Unfortunately, it is the reality of the world we live in.
After a divorce you have to agree on the settling of assets, updating life insurance, resolving custody issues of children and a myriad of other things.
One of the things that you might not worry about (or even think you have to) is your credit. Or rebuilding your credit after a messy divorce.
Recently I got a question form a GFC reader (we’ll call her “Nancy”) that was in the middle of divorce and needed some help. I didn’t feel comfortable answering the question so I asked Nancy if she would mind me reaching out to my “peeps”. (Ahh…..yeah. I got peeps. 🙂 )
In this case, my peep was Gerri Detweiler, credit expert and contributor to Credit.com. When it comes to credit, Gerri knows her stuff!
First let’s take a look at Nancy’s questions:
I’m going through a divorce right now, AND I’ve been unemployed for nearly a year (not by lack of trying to find a new job). Both situations are challenging for me since I’ve been married for over 20 years and I LOVE, LOVE, LOVE to work… so I miss my professional structure and steady income.
I am fortunate to collect unemployment, however the payments aren’t enough to keep up with my necessary household expenses. That does not include an occasional dine out, haircut, or the necessary back to school clothes for our son. (He has grown too much over the summer so I know that I will be visiting retailers to provide at least 6 new shorts for him). I am a cautious spender, I coupon, take advantage of sales and frequent buyer programs, etc., but money still isn’t available for our modified situation.
I wish I could say that I could count on my husband (divorce not final… can’t afford to finalize), however his only contribution for nearly 20 years has been paying the taxes on the house (we own it out right) and insurance coverage for both home and automobiles.
My 8-month emergency fund should consist of $15,000, whereas his annual contribution is $9,000 (not included in emergency fund allocations). After making a large payment toward a credit card balance, I only have $500 in my emergency fund remaining.
Nevertheless, I have been forced into allowing 5 credit cards into default and ultimately collections/write offs. The total amounts defaulted are approximately $6,000, however I do not believe the amounts carry as much weight as the fact that I was negligent on my payment commitments.
My FICO score has recently dropped from 700 to a staggering, 579! I’ve been able to maintain a good payment history with the lease on my car, and the 3 credit cards which I was current on, however I need to know the best and most effective ways to increase my credit score without taking years to re-build.
Once we sell our home, my credit score could potentially prevent me from even renting an apartment. My auto lease expires January 2015 and if I don’t have my credit score increased, there doesn’t seem to be much hope of buying the car outright. I’ve always bought my cars and held them for 10+ years… this is my first and last lease.
Any suggestions are appreciated!
Divorce and Your Credit
That’s definitely not a fun situation to be in. Let’s see what Gerri has to say:
First, you are correct that the cards that went into default are hurting your credit scores significantly. Recent information carries the most weight and the fact that you are falling behind on several bills indicate that you are a high risk. You are also correct that the amount is not as important as the number and severity of late payments.
Once an account goes into collections, paying or settling it does not help your FICO score. However, you do want to resolve these as soon as you can. Otherwise, you risk a lawsuit, or unpaid accounts can be turned over to another collection agency and further impact your scores. You’ll learn more about collections and credit scores here.
While I would like to be able to suggest some kind of shortcut, the fact of the matter is it will take time to rebuild your credit. Yes, this will likely affect your ability to rent a place and to buy your vehicle when your lease expires, but you can make significant progress in two years if you are able to pay accounts on time going forward. The credit score is most heavily weighted toward the last two years of information. You may find these podcasts about credit scores helpful.
It’s not clear to me whether you are able to resolve those collection accounts yet. And that brings me to my main piece of advice:
Focus primarily on stabilizing your financial situation. That’s job #1.
Your credit scores may have to take the back seat for the moment.
I would suggest you contact a credit counseling service for a free consultation. They can give you some objective feedback on what’s going on and may be able to help you with a plan to repay the debt.
I understand this is not an easy place to be in, especially after years of good credit, but over time your credit scores can improve once you get your situation stabilized.
With Credit.com’s free Credit Report Card you can get a truly free copy of your credit score each month, along with recommendations.
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