Rebuilding Your Credit After Divorce

By Tracy Achen

It's an unfortunate fact that many women face problems with their credit after divorce. Whether you're struggling to get by on just one income, trying to pay off lingering marital debts, or have never established credit in your own name, it's time to start paying attention to your credit standing.

Building up a good credit score will make things a lot easier you as you rebuild your life. For example, having a good credit score makes it a lot easier when it comes to financing a new car or buying a house. In addition to loan applications, credit scores are often used in processing rental applications, insurance quotes, and even job applications.

The bottom line… the higher your credit score, the easier your life becomes. The following tips can help you get started establishing your credit if you've never done so, or rebuilding your credit as you move forward in life.

Find Out Where You Stand

The first thing you should do is review your credit report to see what information it contains. The easiest way to get your report from all three credit bureaus is by going to www.annualcreditreport.com. This is the official site that was established to allow people the opportunity to receive a free annual copy of their credit.

Once you get your credit report, review all the information to make sure that everything is listed properly and that none of your ex's information or accounts are showing up. If you find errors, you should contact the credit bureau to dispute the error (the information on how to do this will come with your credit report). Once the dispute process is completed, you will receive notification from the credit bureau along with an updated copy of 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 account was closed at your request. After requesting the change for your account listing, you should wait at least a month or two before ordering another copy of your report to verify that it has been updated correctly.

Establishing Your Own Credit History

If you don't have a credit history because everything was always in your ex-husband's name, it's time to establish one. The easiest way to get started is by applying for a credit card. You should check with your local bank to see if they offer credit cards through their institution. You can also apply for a department store credit card to start establishing your credit.

Once you get a credit card, the trick is to use it wisely. Instead of going wild and racking up a huge balance, only buy with the card what you would be willing to pay for an item with cash. And then be sure to make regular monthly payments. Low balances and on-time payments are what help build your credit rating.

Since credit scores are determined in part by the mix of credit types, you might also consider getting a small loan from your local bank or savings and loan. If you don't qualify for an unsecured loan, you should be able to get a secured loan by using your savings account as collateral. Your regular on-time payments will help establish your credit worthiness and make future approvals for unsecured loans a lot easier.

Paying 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. 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:

Rent or Mortgage Payments - You want to make sure that you have a roof over your head first of all. Otherwise, your credit rating won't really matter if you end up living in a shelter or out on the street.
Car Loans - You especially want to keep current on your vehicle payments if you depend on your car to get you to work. If things get tight, you might consider trading in your vehicle for a cheaper model or buying a used car outright.
Credit Cards - If you have credit cards which are being reported to the credit bureaus, you should strive to make your payments by the due date so that late payments won't be counted against you. Late payments not only hurt your credit score, they can also result in late fees and increased interest rates.
Utility and Phone Bills - Once again, make sure that you send in the minimum amount due to insure your services don't get cut off. 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).
Insurance Premiums - I know it's hard to continue paying for something that you see no immediate benefit from, but it's important to not let your insurance go, especially your auto and health insurance. A way to lower your rates is by raising your deductible.
Secured Loans - Not paying a secured loan will result in the creditor repossessing the property securing the loan. Before defaulting, call the creditor to explain your situation and ask for an extension. This may cost you more in the long run, but can prevent a ding on your credit report.
Unsecured debts - Hospital and doctor bills, attorney fees, and debts to other professionals are sometimes easiest to work with. The main thing is to be upfront about what you can pay and then make sure they are paid on a regular basis.

Paying Down Your Debts

When you're rebuilding your credit after divorce, you need to exercise restraint in building new debt and work to pay off your existing debts. Your debt ratio (debt owed/total credit available) accounts for 30% of your credit score. And one of the fastest ways to raise your credit scores 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.