To Close The Credit Cards Or Not in a Divorce: What You Need to Consider
As a mortgage professional that specializes in divorce, I see a lot of myths about credit and lending. Some of the myths can come from friends, family, co-workers, and even attorneys. Most are just trying to help their friend or family member that is going through a tough time as part of a divorce, and they are giving advice based on their own personal experiences.
One of the myths that I see or hear about from my divorce clients is that they have been advised by someone in their inner circle to close all their joint credit accounts. On the surface, one may think this is a no brainer. You would think, “I don’t want my spouse running up debt that I may have to pay for once the divorce is finalized.” If you believe this might be the case, then you definitely want to discuss this with your attorney as there may be other ways to protect yourself from debt if this happens that don’t require closing your credit accounts.
In some cases, the best option may be to close your accounts to protect yourself. However, in many cases that I work with, there is enough trust between the two parties to agree to either cover any additional debt that they acquire while completing the divorce or not to use any joint accounts for new debt.
Why would it be important to leave the credit accounts open?
The reason is your credit score. Three of the main factors that go into credit scores are available credit, amount used, and length of time on an account. These three categories account for over 80% of the credit score. Once you close the accounts, it is like they never existed, and your credit score can drop severely overnight. We once had a client that paid off and closed every single credit account that they had including mortgages, cars, and credit cards. Their score dropped from approximately 760 to below 640 because they had no open and active credit!
Some may say, “Who cares? I am not going to purchase a home or buy a car in the near future, so I don’t care if my score drops.” Credit scores are part of just about everything you do in life: apartment complexes and lease companies pull your credit, your insurance company may pull your credit, and depending on what type of job you do, a state or federal agency may pull your credit. Having a great credit score compared to someone that doesn’t may be the difference in getting that great rate, apartment, or employment position.
If you are going through divorce, before closing all the accounts, reach out to your attorney or divorce professional to see how the effects of closing those accounts might impact you. If you are purchasing or refinancing a home, definitely contact your mortgage professional before making any major changes—as big changes could put you in a situation where you no longer can purchase or refinance your home.
David Jamison is the Vice President of Rainbow Mortgage Inc. He has been assisting clients going through divorce for over 17 years. In addition, David was an underwriter before starting his own company with his wife, Gale, and has a strong understanding of credit and the complexities of divorce.