Leah Hadley [00:00:01]:
Welcome to Intentional Divorce Insights. I'm Leah Hadley, Certified Divorce Financial Analyst, Accredited Financial Counselor, and the founder of Intentional Divorce Solutions. I'll be your guide through the complexities of divorce, finance, and emotional wellness. Join me as we uncover practical tips and empowering insights to help you navigate your divorce with clarity and intention.
Leah Hadley [00:00:24]:
Hi there, and welcome back to Intentional Divorce Insights. I'm Leah Hadley, and I am so happy that you are here with me today. I want to start today with a question. If your spouse stopped paying a joint credit card tomorrow, would you know about it before the late payment showed up on your credit report? Sit with that for a second. For most people, the honest answer is no. You'd find out maybe 30, 60, potentially even 90 days later. You'd find out when the damage was already done and already reported. That is what we're talking about today, credit, and specifically how to protect yours while everything else in your life is being pulled apart.
Leah Hadley [00:01:14]:
Now, here's why I picked this topic. Now, I've done over 100 episodes, and in some of these episodes, we may have talked about credit kind of in the background, but I've never done a full episode on credit before, not once. So we've talked about retirement accounts, we've talked about the house, The investments, budgets, hidden costs. And credit has kind of quietly been in the background, which honestly, that's the problem because that's how it gets treated in a lot of divorce cases. Credit is easy to overlook when you're in it. You're thinking about where are you going to live? You're thinking about your kids. You're thinking about whether the numbers even work when households, when one household is becoming 2 households, right?
Leah Hadley [00:02:01]:
Yeah.
Leah Hadley [00:02:01]:
Nobody wakes up in the middle of a divorce and thinks, ooh, I should check my credit utilization ratio, right? But your credit does determine things like where you can rent, if you can rent, right? It's going to determine if you can refinance and what the terms might look like, which is going to determine what your payment is, right? Which is going to determine whether that settlement that you just signed Is actually livable. So today I'm going to walk through 3 things. Okay. One, the single biggest misunderstanding about divorce and credit, and it's not what you think. 2, what to actually do organized by where you are in the process. And 3, what to do if your spouse is damaging your credit on purpose, because unfortunately that does happen and it does need a different playbook. Okay, now I've also put together a free, a free guide, excuse me, that walks you through all 12 steps in writing, and I'll tell you how to get it at the end. So let's get into it.
Leah Hadley [00:03:05]:
So let's clear something up right at the top of the show, because I hear this constantly, and it's just not accurate. Okay, divorce itself does not lower your credit score. Filing for divorce does not lower your credit score. Being divorced does not lower your credit score, okay? Getting a decree, it's not gonna lower your credit score. The credit bureaus don't track your marital status. It's not a field that's on your credit report, okay? There's no box that says divorced and some kind of a penalty attached to it, right? So I wanna be clear, the reporting agencies, that's Experian, you know, Equifax, TransUnion, they don't care whether you're married or not. So when somebody tells you That divorce is going to tank your credit. That alone is not true.
Leah Hadley [00:03:55]:
And I want you to stop carrying that particular worry around with you. But I do want you to understand what is true, because I think this is really important. Divorce creates the conditions where credit damage can happen very easily, not because of the divorce itself, right? But because of everything that may be happening around the divorce. So think about what actually moves a credit score.
Leah Hadley [00:04:19]:
Mm-hmm.
Leah Hadley [00:04:19]:
Right. Payment history is the most important piece, right? Credit utilization, meaning how much of your available credit that you're using, that's the next biggest factor. The age of your accounts, that's going to be around 15% of the impact. And your mix of accounts, that's the type of accounts that you hold, that's something like 10%, where new inquiries make up the rest. But Just to reiterate, the 2 most important factors are going to be your payment history and your credit utilization. Now let's take a look at what divorce does to each of those things. All right, payments get missed because you may have thought that your partner was paying for something and they may have thought that you were paying for something, or maybe one of you just decided to stop paying for something, right? Balances go up. Keep in mind, household income very commonly drops, right? Because a lot of times, the income that was supporting one household is now supporting 2 households, right? So household income very commonly drops, but expenses don't often drop in the same way.
Leah Hadley [00:05:34]:
And so sometimes somebody ends up putting groceries on a credit card, right? Or legal fees on a credit card.
Leah Hadley [00:05:39]:
Right.
Leah Hadley [00:05:40]:
Accounts get closed in a hurry. Now, sometimes that's emotionally, but it's important to remember that closing accounts can shrink your available credit and can shorten your credit history, right? What else happens? New applications go out. Maybe you need a new card in your name, or you're trying to get a 0% promotional introductory offer, or maybe you're renting an apartment, right? Every hard inquiry has the potential to pull your score down. Um, keep in mind that FICO puts it at roughly 5 to 10 points each. Now, none of that is the divorce itself. All of that that I'm sharing, those are things that may happen during the divorce. And that distinction is really important because it tells you where to put your attention, right? You're not trying to protect yourself from a filing. You're trying to protect yourself from a set of very specific Very predictable financial events, and that, that you can actually manage.
Leah Hadley [00:06:46]:
And that's what we want. We want to empower you, to show you where you have opportunities to really feel in control right now. One quick practical note on utilization, since it is the second biggest factor and the one that you're going to have the most direct control over, okay? Utilization is simply the percentage of your available credit that you're actually using. Okay? So if you have a card with $5,000 limit and you're carrying a $1,000 balance, that's gonna be a 20% utilization rate on that card. Okay? Now, the general guidance is to keep it at 30% or below. Closer to 10 is better. But here's why this matters so much in a divorce specifically. If your household income drops and your balances start to creep up, or if you close a card and your total available credit shrinks, your utilization can actually jump without you doing anything differently.
Leah Hadley [00:07:47]:
Same spending, worse ratio, lower score. So when you're deciding whether to close a joint account, that's part of the calculation, not the whole calculation.
Leah Hadley [00:07:58]:
Right.
Leah Hadley [00:07:58]:
Because an open account with a hostile ex on it, that has its own risks associated, right? But part of it. And one more thing worth saying out loud, your credit isn't just about borrowing, okay? Landlords check it, utility companies check it, insurers in many states use credit-based scores, okay? Some employers, depending on the nature of the industry or kind of role that you're in, may be looking at a version of it. So when you're rebuilding a life from scratch, That number touches a lot more doors than a lot of people realize. Okay. Now I want to give you the concept that I think is the single most valuable thing in this episode. So if you remember nothing else, remember this: when you have a joint debt, you are not in one relationship, you are in two.
Leah Hadley [00:08:57]:
Right.
Leah Hadley [00:08:58]:
2, right? The first relationship is between you and your spouse. That one's governed by your settlement agreement or your court order. That's the divorce decree, right? That's the document that your attorney was helping you to negotiate, right? The second relationship though is between you and the lender. Now that one is governed by the original credit agreement that you signed When you open the account, that could have been 15 years ago, right? It could have been on a kitchen table that you don't own anymore. Here's the part that often catches people off guard. Your divorce decree does not touch the second relationship. Your decree can say in plain language that your spouse is responsible for the Chase credit card. A judge can sign it.
Leah Hadley [00:09:50]:
It can be filed with the court. And honestly, Chase doesn't care. Chase was not party to your divorce. Chase has an existing contract with 2 people, and until that contract is satisfied or changed, both people are still on the hook. So if your spouse doesn't pay, the late payment does go on to your report too, right? Your recourse is against the spouse, not the bank. Now, you may be able to go back to court. You may be able to pursue, you know, enforcement or reimbursement. Your attorney can talk talk you through those options.
Leah Hadley [00:10:26]:
But none of that unrings the bell, okay? None of that removes the late payment. That derogatory mark can sit on your credit report for 7 years while you're trying to live your life, right? While you're trying to rent that apartment or refinance your house. Now, I have watched this happen to very careful, very organized, smart women who did everything they were told to do, right? They got the language in the decree. They Thought they were protected, and they were protected in one relationship, but still exposed in the other. So here's kind of the practical translation, if you will. My spouse will be responsible for the mortgage. That's not a plan. That's a sentence, right? A plan says how their name and your name actually gets separated, by when, and—
Leah Hadley [00:11:18]:
How much.
Leah Hadley [00:11:19]:
What happens if it doesn't work, right? That might mean a refinance. It might mean the house gets sold. It might mean the balance gets paid off out of marital assets. It might mean a lender-approved assumption, right? Which is a real thing, but not available on every loan. Whatever it is, it needs 3 more pieces. It needs a deadline. It needs proof of completion. Mm-hmm.
Leah Hadley [00:11:47]:
And it needs a backup plan if it fails. Because here is the scenario that I see all the time, right? She agrees that he can keep the house and refinance. Sounds fair, fine. Nobody checks whether he can actually qualify on his income alone at today's interest rates. 6 months later, the refinance is denied. Her name is still on a $300,000 mortgage, and there's nothing in the agreement that says what happens next. Now, this is exactly why I want people to run the numbers before they get into these agreements, right? Not after a settlement can look completely reasonable on paper and still leave your credit exposed for years in some cases.
Leah Hadley [00:12:33]:
Okay, so let's get practical. I'm going to organize this by where you are, because the steps are different depending on whether you're thinking about divorce, You're in the middle of one, or you've already finalized. So if you are early, like before or maybe right at filing, I do want to encourage you to start by pulling all 3 credit reports. This isn't about the score. I want you to pull the actual credit report. So you're going to want— excuse me— Equifax, TransUnion, and Experian.
Leah Hadley [00:13:07]:
Okay.
Leah Hadley [00:13:08]:
You can get them all for free. Go to annualcreditreport.com. That's a federally authorized site. You can get all reports from all 3 bureaus. And when I say don't look at the score, I mean, like, I'm not interested in the score for this. This is not the purpose of this exercise, right? That's one number. The report has a lot of information in it. And what you're looking for is every open account, every mortgage and HELOC, car loans, personal loans, Maybe there's student loans, anything in collections.
Leah Hadley [00:13:41]:
There are any inquiries that you don't recognize. Pay attention to how you are listed on each account. Are you a joint owner, a co-borrower? Are you an authorized user? Those are not the same thing. We'll come back to that. Now, one caution, your credit report is a starting point, not a complete inventory. There are plenty of obligations that don't show up on a credit report. So also go through, you know, tax returns, bank statements, loan statements. I want you to build a list, one document, one place that you have identified every account, the creditor, the type of account, the balance, what the minimum payment is, what the due date is, whose name is legally on it.
Leah Hadley [00:14:31]:
Who has access to use it and who is actually paying for it right now and what has to happen for it to be fully separated. Now that last column is the one people skip and it's the one that really matters right now. I know, I know that this is going to sound tedious for a lot of people, especially for those of you who just don't like looking at the numbers. I get it. It is tedious. But it also solves the single most common cause of credit damage, excuse me, in a divorce. And it's not malice, it's assumption. That's right.
Leah Hadley [00:15:10]:
The most, the single most common cause of credit damage in divorce is the assumptions that we make. We assume that she is going to continue to pay on autopay or that he's handling it, right?
Leah Hadley [00:15:23]:
Right.
Leah Hadley [00:15:25]:
But nobody's handling it. Now, if you are in the middle of a divorce, I want you to keep making at least, at least the minimum payment on anything with your name on it, even if you're furious about it, even if you are certain that that debt should be the other person's. Now, I know how that sounds. I do know how that sounds. You're not conceding anything by making a payment. Keep the records. Your attorney can address reimbursement or a temporary order if needed. What you are doing is refusing to let a fight about responsibility turn into a second separate problem that lands on your credit report.
Leah Hadley [00:16:05]:
Okay. Now deal with the joint cards, but talk to your attorney first, especially, especially if there are temporary orders in place.
Leah Hadley [00:16:20]:
Excuse me.
Leah Hadley [00:16:22]:
Or if one of you genuinely needs that card for household expenses, don't unilaterally close something and create a legal problem while solving a credit one. Okay, now once you've got that guidance, you want to call the issuer and ask what's available. Depending on the account, you might be able to freeze new charges while you keep paying down the balance, or You may want to reduce the limit or you may want to remove an authorized user. Maybe you want to close it to future purchases. Maybe you want to move an agreed balance onto an individual account. Here's what I want you to hear, and this is really important. Cutting up the physical card doesn't do anything.
Leah Hadley [00:17:04]:
Okay?
Leah Hadley [00:17:05]:
You cut up the physical card, the account is still open, right?
Leah Hadley [00:17:08]:
Right.
Leah Hadley [00:17:09]:
Stored card numbers, digital wallets, autopay, a replacement card in the mail— those are all still going to work. So it's really important, it's really, really important that you know the difference between being a joint owner and an authorized user. Okay, I mentioned that I would go into a little bit more about that. A joint account holder— owner, excuse me— a joint account owner or a co-borrower is contractually on the hook for the debt. An authorized user generally is not going to be responsible for paying the balance, but the account can still show up on her credit report or on his credit report and affect them. So if you are an authorized user on somebody else's account, and that account is carrying a big balance, or Maybe that person's not making on-time payments. You can call and be removed as an authorized user, right? If you have somebody who is an authorized user on your account and you want to remove them, you may want to find out, can you just remove them? Do you need to get a new account number? Right now, it's important that you lock down your access.
Leah Hadley [00:18:30]:
Okay.
Leah Hadley [00:18:31]:
New passwords on your email, your bank, your credit cards, payment apps, phone account, cloud storage, right? Change the security questions if your spouse knows the answers, and a lot of them would. I mean, a lot of you guys have been married for a long time, right? It's important to remember to check devices that may still be signed in, right? So a lot of times if you're changing a password somewhere, it's not necessarily killing an active session, right? You may want to consider a credit freeze if there's real risk. A freeze can restrict access to your credit file, so that makes it much harder for somebody to open a new account in your name. It doesn't cost anything. You do have to place it with each of the 3 bureaus separately, but for some people, that's an important step, right? A fraud alert is a lighter-touch option that tells creditors to verify your identity before extending extending any credit. But I think seriously about a freeze if you found accounts or any inquiries on your report that you didn't recognize. You know, certainly most, most of the time your spouse is going to have your Social Security number, right? And so, you know, you, you have to know the nature of your situation. And, you know, if there's been financial abuse involved, if there's been a history of forged documents.
Leah Hadley [00:19:58]:
Certainly you want to make sure that you're taking the steps that you need to really protect yourself. Now, if you haven't in the past, it is important that you are building credit in your own name. It is important that you do have a bank account in your own name, a checking account, a savings account, a credit card, right? Depending on the nature of where you are in the process, it may be time to redirect your income. And then if you're redirecting your income, you wanna make sure you're updating those autopays, right? A lot of times, you know, people get focused on kind of where the income is going, but maybe forget some of the commitments they had coming out of that account. So we wanna make sure to be careful about that. Now, to be clear, I'm not talking about moving or hiding any money, right? We're talking about how over time you are making decisions on how you're going to start operating going forward and planning and preparing for your future, right?
Leah Hadley [00:20:50]:
Yeah.
Leah Hadley [00:20:52]:
Making sure that you have the structure in place to be able to pay your bills and establish your own credit history without depending on access to a shared account. Now, if you do not have much individual credit history, I really wanna encourage you to go slow with this. One account for real expenses, pay it on time, That is going to be so much more valuable than opening multiple accounts and potentially, you know, missing a payment here or there, forgetting about something. Now, this one surprises people, so stay with me. But I do want you to go hunting for the small stuff. The debts that wreck credit in a divorce are often not the mortgage. They're those little recurring things that nobody agreed to or nobody claimed, if you will, right? The gym membership auto on a particular credit card or a streaming service or a storage unit. Um, you know, those are the kinds of things that come up when accounts get closed or cards get canceled.
Leah Hadley [00:21:58]:
Sometimes people just kind of forget about these things and then they end up in collections. Okay. And it's not just subscriptions, right? We see, you know, unpaid utility bills, medical bills, parking tickets, you know, all of those kinds of things can get reported over time. So typically It's important that you take the time to make sure that you are paying attention to those little things so they're not getting lost in the process, right? A collection account does real damage, and it does it over an amount that can be honestly like embarrassingly small. I've seen, like, I've seen a $60 bill turn into a mark that costs someone an interest rate on their mortgage.
Leah Hadley [00:22:41]:
Wow.
Leah Hadley [00:22:42]:
That cost them thousands of dollars. Okay, so go through the last 3 months of statements on every single account, both of yours if you have access, and pay attention to any of the recurring charges, right? Make sure that if there's nobody is claiming it, then it's getting canceled, right? And, um, if there's something that you are claiming, that you're, you're putting it on a card in your own name. Now I do want to encourage you, if you have a temporary agreement as you're getting through the process, that you put that temporary arrangement in writing. You don't have to wait for the final degree to figure out how are you guys are getting through the process, who's making the mortgage payments, who's making the utility payments, right? Who's responsible? And what happens if they don't pay? And right, whether and what's acceptable to charge and not charge, things like that. So the more that you are able to be in a space and communicate and have that documented, it just eliminates a lot of those disagreements. It is important to continue to monitor. Checking once at the beginning, that's just not enough. Setting alerts on payments due, payments received, large purchases, that can be really helpful.
Leah Hadley [00:23:55]:
And if you find something that's inaccurate, make sure you dispute it with both the credit bureau and the company that reported it. You wanna keep copies of everything. Now, once the divorce is final, you want to go back and verify. Now, this is a step that almost everybody skips, and it's one of the reasons why problems surface years later. Okay, so finalizing a divorce does not automatically change anything on any of your accounts. Nothing happens just because the judge signed something. So it's really important that you confirm the activity, right? Were the joint cards actually closed or paid off? What's going on, right? Were authorized users actually removed? Did the refinance or the assumption of liability actually go through, right? Do the paid accounts show the correct balance? Is your address up to date? Any unfamiliar accounts or inquiries, right? Pull your report again in a few months and keep the paperwork. Any payoff letters that you get, if there's any refinancing, anything you sent to a creditor, make sure that you keep documentation.
Leah Hadley [00:25:07]:
2 traps I want to name specifically because they are expensive. Okay, the first is secured debt. Owning something and owing on it are two different things, and the paperwork for each is different, right? A quitclaim deed changes who holds the title to a house. It does not remove you from the mortgage. Signing a car title over does not remove somebody from a car loan. So it is entirely possible to give up ownership of an asset and still be fully responsible for the debt on it. Now you lose the thing and keep the liability. Now don't sign anything transferring title until you know exactly, exactly what is happening with the loan.
Leah Hadley [00:25:57]:
Okay. Now the second is the zero balance HELOC, a home equity line with nothing drawn on it may feel like a non-issue. It isn't, okay? It is an open line of credit that somebody can still borrow against. Now, if both names are on it, that's an open door. Close it, right? Or address it explicitly in your agreement. And then there's the harder situations. Sometimes this isn't an oversight, right? Sometimes the spouse stops paying on purpose. They run up balances on purpose.
Leah Hadley [00:26:33]:
They drain accounts. They cut off your access or open credit cards using your information. Now, if that's what's happening, move quickly and stop trying to handle it privately. Tell your attorney and give them the documentation. Okay? I want you to send them any messages, alerts, screenshots, credit reports, statements. Call the creditors and ask what protection exists. Okay, you need to change your credentials, change your credentials, put that freeze on, right? You can always, if you need to, report identity theft at identitytheft.gov. Okay, but I want to say one more thing.
Leah Hadley [00:27:15]:
Financial abuse is not only about somebody taking money. It also looks like creating debt in your name. Withholding information, sabotaging your ability to work, controlling account access, right? Using credit as leverage to keep you from leaving. If you're recognizing yourself on that list, that's not a budgeting disagreement, and you do not have to manage it alone, and you do not have to manage it quietly. So I want to pull all of this together. And come back to where I started, right? Divorce itself does not hurt your credit. What hurts your credit is missing payments, increasing balances, joint debt that never actually got separated. Remember, your decree governs your relationship with your ex.
Leah Hadley [00:28:06]:
Your credit agreement governs your relationship with the lender. The credit agreement is not rewritten based on your divorce decree.
Leah Hadley [00:28:16]:
Right.
Leah Hadley [00:28:18]:
And of course, my spouse will pay it is not a plan. A plan has a deadline, it has proof, and it has backup. Right now, I know that was a lot, a lot of information, and I don't expect anybody to hold 12 steps in their whole head— excuse me— while driving. So I did write it all down for you. I put together a free guide called Protect Your Credit Through Divorce. It has the full 12 steps that I talked about in writing. Plus it has a joint account inventory worksheet you can kind of fill in as a place to list any questions to ask before you agree to let someone keep a particular asset and the mistakes that I see most often. So here's how to get it.
Leah Hadley [00:29:03]:
I want you to go onto Instagram, follow Intentional Divorce Solutions. Send us a DM, just simply the word credit. DM Intentional Divorce Solutions on Instagram, just one word, the word credit. And if you're looking at your own situation right now and you're thinking you're not sure whether the settlement on your table actually works, that the conversations that we're having with our clients every single day, we look at the debt, we look at the cash flow. We look at the housing decisions, what it takes to genuinely separate your financial life. And we have tons and tons of resources that can help you. If you haven't gone to our website, be sure to check it out at intentionaldivorce.com. Here's the last thing I want to leave you with.
Leah Hadley [00:29:55]:
Rebuilding credit is not dramatic. There's no clever workaround. There's no secret.
Leah Hadley [00:30:01]:
There's no hack.
Leah Hadley [00:30:02]:
It is a series of very ordinary decisions made consistently. Check the information, pay on time, keep the balances reasonable, deal with the problems while they're small. That's it. It's not glamorous work. And I know that right now you may be doing all of this while also grieving and parenting and working and trying to figure out who you are on the other side of all of this. Protecting your credit may feel like one more thing on the list that is just already too much. But this one really is worth your attention because it's the thing that's going to help determine your options later, right? Where you live, what you can borrow, how much breathing room you have. You're not behind, right? You're handling it.
Leah Hadley [00:30:57]:
And I just want to encourage you To keep handling it. Let's keep our head out of the sand, right? Thank you so much for spending this time with me today. If you haven't, go check your credit reports and I will see you next week.
Leah Hadley [00:31:12]:
Thank you for joining me on Intentional Divorce Insights. It's a privilege to share this time with you. I hope each episode offers valuable guidance to navigate your journey. If you find our content helpful, please leave a review to help others discover the benefits of intentional decision-making in divorce. Until next time, take care and continue to embrace your path with intention.
