Credit is really important. Not only does it impact your ability to obtain a new loan or credit card, it may also impact your ability to get a job or run a small business, to participate in a government program, or to obtain insurance.
Divorce can wreak havoc on your credit if you aren’t careful. Divorce is a financial challenge to most, which makes monitoring one’s credit even more important.
I recommend that you request a credit report at the beginning of the divorce process and also request a report from one of the three agencies every 3-4 months to continuously monitor changes during the process. (Everyone is entitled to get one free credit report from each of the three credit reporting agencies each year. Credit reports are available at www.annualcreditreport.com. These reports will include your credit history only, not your score.)
Make sure that you have some credit accounts in your own name. It’s best to do this throughout your life; if you are getting a divorce, do it as soon as possible to help establish a personal credit history separate from your spouse.
There are several credit bureaus – Experian, Transunion, and Equifax are the major players – and each has their own version of a credit score, each weighing different factors in debt payment history a little differently. But FICO scores are the most important score of all – these are scores used by lenders (particularly mortgage lenders) to determine credit worthiness. A FICO score may often be 10-40 points different than a proprietary score from one of the credit bureaus. If you want to obtain your FICO score, usually you will have to pay one of the credit bureaus a small fee to obtain a credit report that includes a score.
Having good credit pays off! For a person or couple with a score less than 600, it’s highly unlikely a home purchase is possible, however all borrowers are encouraged to apply. At 600-640, it’s possible, but the interest rate will be higher and loan options limited. With scores in the 640-740, better rates and more options may be available. With scores over 740, a borrower is generally eligible for the most loan options and best rates, which can mean a more expensive house is affordable or paying less each month (and over the life of the loan) than someone else with the same loan amount but lower score.
If your credit score is lower than you’d like or you see inaccuracies on your report, I recommend meeting with a credit consultant. Be wary of credit counseling services where you pay a monthly fee; some of these services are great, but some are not.
(You can read more credit tips here: http://www.rebeccashomeloans.com/credit-is-critical/)
During the divorce process, at some point it will make sense to begin closing any joint credit accounts. Be sure that you have set up your own individual accounts prior to this happening. And don’t forget your home equity line of credit! If you and your soon-to-be ex have a HELOC (home equity line of credit) on your existing property and it is in the names of both spouses, close it.
- Having a zero balance does not mean that the account has been closed; you must specifically request that the HELOC be closed
- Leaving the HELOC open presents an opportunity for one of the spouses to use it, creating a new liability for both spouses
If you are divorcing and have an existing mortgage or want to buy a new home, talk to a mortgage lender – preferably a Certified Divorce Lending Professional® – early in the divorce process.
A Certified Divorce Lending Professional® (or CDLP) has special training and expertise to navigate the complicated intersection of mortgage lending, real property laws and tax codes. CDLPs work with attorneys or financial advisors and their clients to:
- Identify the options for and implications of dividing residential real estate
- Identify divorce settlement agreement elements necessary to support future residential real estate financing needs
- Manage post settlement residential property transactions
A CDLP can help you and your attorney or financial advisor make decisions about existing residential real estate and prepare you for future residential real estate financing needs. Your goals for future home ownership are critical to understand early in the divorce process so your attorney can help craft a settlement that supports those goals. However, attorneys and financial advisors are not experts at mortgage financing, the same way loan officers are aren’t experts on the law or financial planning, and a CDLP can step in to provide that expertise and detailed recommendations specific to your mortgage situation and goals.
Even if you did not engage a CDLP during the divorce process, one can help you after the divorce as well. Their additional training will help ensure a smooth process for a refinance or a purchase.
Start smart! Engage a Certified Divorce Lending Professional as part of your team to help you understand your options, make decisions, and be prepared for a new financial future.
All loans subject to credit approval. Rates and fees subject to change. Mortgage financing provided by PrimeLending, a PlainsCapital Company. Equal Housing Lender. © 2016 PrimeLending, a PlainsCapital Company. PrimeLending, a PlainsCapital Company (NMLS: 13649) is a wholly owned subsidiary of a state-chartered bank and is an exempt lender in TX. V010116.