Rebuilding Your Credit After Divorce

Rebuilding your credit after divorce may not seem like a priority right now, especially if you're still reeling from your marriage ending. But, if you eventually want to finance a vehicle or buy a house, you need to make sure that you have a good credit rating. Since your credit score will affect your ability to get a loan, rent a house, or get hired for a job, having the highest score possible is an excellent goal to work towards. To help you get started rebuilding your credit, read over the following tips.

Find Out Where You Stand

To get started, you should order a copy of your credit report. Review the information to make sure that everything is listed properly, and that none of your ex's information or accounts are showing up.

If there are errors on your report, you should contact the credit bureau to have them corrected (the information on how to do this will come with your credit report). You also want to look for any accounts that should have been closed during your divorce that are still showing as open accounts. In this instance, you should contact the creditors to close it, and ask that they report to the credit bureaus that the was account closed at your request. After correcting and updating all the information, you should order your report again in a couple of months to verify that everything is being reported correctly.

Establish Credit In Your Own Name

If you don't have credit established in your own name, now is the time to get started. If you find that you don't qualify for a major credit card right now, you might consider applying for a store credit card. If you're approved, charge a small amount and make sure to make regular monthly payments.

Another way to start building credit in your own name is by taking out a small loan at your local bank, and using your savings account as collateral. By making regular payments on your loan, you will begin to build a solid credit history, which will make it easier to be approved for unsecured credit in the future.

Pay Your Bills On Time

While you're working on rebuilding your credit, one of the most important things that you can do is to pay all your bills on time. The longer you pay your bills on time, the higher your score will be.

I know how tight money can get after divorce, and sometimes bills have to be juggled to get them all paid. To help you decide which bills to pay first, here's a list to help you prioritize your payments:

1. Mortgage or rent payments - Make sure that you have a roof over your head first of all. Otherwise, your credit score won't really matter if you end up living in a shelter or out on the street.
2. Car loans - If you depend on your vehicle to get to work, keep these payments current until you can get alternate transportation. This might include trading in your vehicle for a cheaper model or buying a used car outright.
3. Credit cards - You want to make the minimum payment by the due date because these accounts are reported after they are 30 days late. While keeping your credit report clean, this will also keep your interest rates from rising and help you avoid late fees.
4. Utility bills - You want to pay the minimum required to make sure that the water still runs and the lights are on. Find out the last day that you can pay before the company disconnects service or takes further action. Since most electric or gas companies have very low late fees, you might be able to delay payment and pay double next month. If you have cable, this might be one of the luxuries to give up for the time being (unless you are bound by a contract).
5. Health and auto insurance premiums - Since many states require auto insurance, this is a bill you need to make sure gets paid. Also, Murphy's Law dictates that a hospital visit is almost guaranteed as soon as you drop health insurance. If you need to, you can raise your deductible to lower your monthly premium.
6. Secured debts - If these don't get paid, the creditor can repossess the property that was used to secure the loan. If you absolutely can't make the payment, you need to see if you can return it to the creditor without it hurting your credit.
7. Unsecured debts - These include debts to your attorney, doctor and hospital bills and other debts to professionals. Many times, as long as you pay a small amount monthly, these accounts won't go into collection. If you absolutely can't make that months payment, contact the creditors to let them know that your payment will be late and see if they will work with you.

Pay Down Your Debts

When you're rebuilding your credit after divorce, you need to exercise restraint. Since a high debt ratio hurts your credit score, the most effective way to improve your score is by paying down your debts.

Now is not the time to finance a new vehicle or invest in a new wardrobe. Instead of taking on more debt, now is the time to cut corners and put the money you save towards your existing debts. I know that it's not fun, but neither is eating baloney sandwiches because you have to pay for that swank new outfit that you charged on your credit card.

Divorce and Credit Card Debt
Does Divorce Affect Credit Ratings?
Protecting Your Credit During Divorce
Debt Liability and Divorce
Debt After Divorce - Relief Options
Return from Credit After Divorce to Managing Money

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