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Considering Divorce? Here Are Tips To Help You Protect Your Credit

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Published: 26Jan2007
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Protecting your credit before the divorce

A looming divorce can be stressful on anyone and in the heat of the moment people who once shared love and respect can do terrible hurtful things to each other. If care is not taken during this stressful time, divorcees can find themselves in hot water later on down the track, worse still it is possible that serious damage can be done to an individual's credit rating. It is in your best interest to make sure that your credit and good name are protected before, during and after divorce. By taking a few precautionary steps, and having a solid understanding of the way your accounts work, before the divorce begins will mean that a recent divorcee wont have quite so many pieces to pick up after the divorce is over.Plan ahead and nip any chance of damage to your credit in the bud, before it gets serious.

Understanding Your Accounts

There are two main types of accounts. These are called individual and joint and we will address them in detail in the course of this article. One person owns an individual account and, in order to have the account, that person's income, assets and credit file are used as a decider of whether the person is eligible. The lending institution does not factor the possibility of a partner into the person's financial obligations or assets when deciding to give an applicant an individual credit account. What this essentially means is that the person who owns the account is responsible for the payment of the account, not a second party. This individual account will be noted in your credit history and never in your partners if they are not the holder of the individual account. Always research the situation because this is where things can get tricky. If you live in a community property state, all debts, regardless of their type, are included as joint responsibility while two people are married. This means that if you are married and your partner has an individual account on which a large debt is owed, even though you are not responsible for the debt, it becomes your responsibility anyway. Even worse, this debt will be included in your credit report, which can be damaging if your partner doesn't pay it. An individual account can have its good points as well as bad. If you don't work or have a very low income, it can be difficult to get credit because your income won't support it. Some times, in this situation, the only way to get credit is to be included or include your partner on the account or start a joint account together.

Individual accounts and authorized users

If you have already got an individual account, it is possible to add an authorized user. An authorized user is someone that has access to your account at his or her convenience. But keep in mind that if you include another person in your individual account, you are still the only person who is responsible for the account. This means that any debts that are owed are the account holder's responsibility, not the authorized user that has been included.

Joint Accounts

If married couples apply for credit together, then they are jointly responsible for any debt that is incurred on the account. While things are going well in a relationship, this form of credit account can be ideal. The chances of getting credit are more likely because both parties can offer assets and income to the deal. The problem with joint accounts is that when a couple decide to divorce, it is possible that your partner may run up a huge bill, or stop paying their share of the payments that you both are responsible for. If payments on the account aren't made, then this could ruin your credit.

How to protect yourself

With an individual account that has an authorized user, the holder of the account should immediately request that the authorized user be removed from the account and that their card be revoked. Because you are the primary cardholder, you are completely within your rights to do this. If you have a joint account you should request that the account be closed immediately before any damage can be done. If there is a balance owing on the account, then you should request that half of the balance be put into an individual account for each person. A lending institution is not allowed to close an account simply because a married couple have divorced or are contemplating divorce. However, if one of the people in the couple requests that the account be closed, then the lending institution is allowed to make the changes. If divorce is on the horizon, it is important to address this issue immediately since lending institutions are not required to change joint accounts to individual ones, but may choose to do so at their own discretion. Lending institutions may request that each party re-apply for their credit accounts again. If this happens, it is possible that the lending institution may deny credit to one or both of the account holders if their income is insufficient or their credit report is blemished.

Prevention, the best cure

If divorce is looming for a couple, the best thing to remember is that prevention is the best cure. By closing accounts or removing authorized users, it gives you a better chance at keeping your credit intact and on track. If you can talk to your partner, then try to resolve credit issues and make changes to your accounts. Whether or not you can talk to your partner, you should make fair and reasonable plans that keep both yours and your partner's best interest at heart. It is also important to remember that if you are required to pay debts incurred on credit and the payments are not made on time, then you run the risk of these appearing on your credit report. Once you have ruined your credit rating, it takes a long time and a lot of hard work to repair it. Keep your credit survival in mind and prevent problems before they occur.

Liz Roberts is a loan consultant with NewHorizon Finance and has been providing consumers and business owners with financing since 1989. For a list of bad credit credit cards please click here. To join our FREE Credit Repair Tips newsletter, please click here

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