It’s hard to watch television or go online without seeing advertisements that invite you to check your credit score. The ads talk about the importance of having a good credit score, but don’t really get into how it is arrived at or what exactly it means.
Your credit score is an important part of your financial picture. Lenders combine your credit score with the information in your credit report to assess your risk as a borrower. If your score is high, you look like less of a risk. If your score is low, lenders may question your ability to pay what you owe.
It’s critical to understand where you stand post-divorce. That’s because you might be looking to rent or buy a new place, purchase a car or get a new credit card. Your credit score can affect all of these things; if you are deemed a credit risk, companies may require a security deposit or have less flexible terms in which you have to pay.
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So what impacts your credit score?
There are a number of things that can affect your credit score. The most common is your ability to meet your monthly financial obligations. If you have a credit card that requires a minimum payment of $200, then that amount needs to be paid by the due date requested, otherwise your credit score could be affected. This can apply to credit cards, bank loans, utility bills or mortgage and rent payments.
The other item that impacts your credit rating is your debt to credit ratio. If you have three credit cards that are at the maximum limit, then you have a high debt to credit ratio – which can impact your ability to get additional credit or the rate on which you pay for additional credit.
How long does it take to improve your credit score?
It takes very little time to destroy your credit score: a few missed bill payments, late credit card payments and a few bounced cheques will have an immediate effect and may lower your credit score. Unfortunately, it takes a lot longer to repair a poor credit score. It can take 12 to 24 months or longer to improve your credit score after it’s been damaged.
Your credit score post-divorce
Many couples will sever the major credit cards and mortgage that they share while going through a divorce. But some forget about the cards that they rarely used, as well as car leases for a vehicle that one party still drives, or “don’t pay a cent for twelve months” purchases. Unless these credit cards and payments were officially dealt with or cancelled, they are likely still shared.
In regards to the credit cards, regardless of whether they have a balance or not, technically, someone could reactivate them, and your credit score could still be impacted whether you approved any purchases or not. This is why it’s critical to understand your credit score and request a credit report after you separate. By doing this, you will be able to see all of your “dormant” credit cards that are still shared with your ex, and you can officially cancel them so that your credit score isn’t unexpectedly impacted.
If you share credit cards or a line of credit with your ex-spouse, it’s critical that you cancel this credit relationship immediately. His or her ability to pay (or not pay) will impact your personal credit score – which again can affect your ability to get credit or the terms in which you receive credit. As long as both of your names are attached to a credit card, you can potentially impact one another’s credit score.