Newly divorced? Here’s a guide to rebuilding your credit

When a couple makes the decision to divorce, it’s much more than a parting of the ways. Assets like homes and cars may need to be split, and joint debts like credit cards and loans may need to be paid off. If not handled correctly, these actions could cause a negative hit to your credit history and score.

My divorce in 1998 was pretty simple. I bought a condo in my name before we were married, and I had my own credit cards, so none of that was on the table as joint assets. The only real asset we had together was our car — and I gladly gave it to him.

However, not all divorces are as simple as mine. No one goes into a marriage thinking things will end. But if they do, and if you have joint assets such as credit cards, your finances can get complicated. After a divorce, getting your financial house in order should be your top priority.

Many people, even those not going through a divorce, feel extreme anxiety when going through their finances, says Jacqueline Newman, a New York City-based divorce attorney and author of “The New Rules Of Divorce: 12 Secrets to Protecting Your Wealth, Health, and Happiness.”

“Add a divorce to the mix and the stress levels jump exponentially,” says Newman. “Two homes are always more expensive than one, so if things were financially tight when everyone was under one roof, it will be even tighter when paying for two roofs.”

Below, I offer a checklist of what you should do to ensure you can build your post-divorce life on a solid financial foundation.

Create a new budget

After divorce, you may need to take a hard look at your budget and change your lifestyle. Track your expenses to see what your spending looks like. This can be as simple as creating a budgeting spreadsheet using Google Spreadsheets or Microsoft Excel, a budgeting tool or even ChatGPT. Then take an inventory of all your expenses versus the money you earn.

Check for items including:

• Rent or mortgage payment
• Property taxes
• Car payment
• Gasoline
• Food
• Utilities
• Childcare
• Insurance premiums
• Student loan payment
• Medical bills
• Tuition fees
• Home and car maintenance
• Gym membership
• Entertainment and hobbies
• Clothing and personal care
• Travel
• Automated subscriptions

It may be painful, but you need to know where you stand in a post-divorce world so you can get yourself on the road to financial stability. The savings you find will be well worth it.

Review your accounts

Often, clients enter a marriage with excellent credit scores and exit with horrific ones, says Newman. “It can be especially detrimental to the less-monied spouse who may have to try to qualify for a mortgage and has little in the way of income streams and assets,” she explains. “Many people go into debt during their divorce due to the legal fees and the additional costs of separating into new homes.”

There are people who never failed to make a credit card payment that find themselves unable to pay their debts due to a lack of funds, resulting in a negative impact to their credit score, says Newman. “On the other hand, many people end up liquidating assets during a divorce that provides them with cash to be able to pay off debt, and they can improve their credit scores after a divorce.”

Put a freeze on your cards, and make a list of your cards and their balances. “I can understand a client’s concern about [their] spouse engaging in retail therapy, so I usually suggest placing limits on credit cards instead of canceling them all together,” says Newman. “Courts do not like when a spouse fully cuts off another spouse’s credit cards during the pendency of a divorce.”

Check your credit report

“When clients first come to see me, I often suggest they run a credit check to confirm that [they are] well aware of what debt is in their name,” says Newman. “That said, there is so much credit card fraud out there, that it is probably good for any person to do this on a regular basis.”

Check your credit report weekly — for free — at AnnualCreditReport.com. Make sure that your identifiable information, including names, addresses, Social Security Number, accounts and loans, is correct. The Consumer Financial Protection Bureau (CFPB) recommends looking for other issues, including:

• Accounts belonging to another person with the same or a similar name as yours
• Closed accounts reported as open
• Accounts that are incorrectly reported as late or delinquent
• Same debt listed more than once, possibly with different names
• Accounts with an incorrect current balance or credit limit

Without a prenuptial agreement that specifies that each party is responsible for their own respective credit debt, dealing with balances can be tricky, says Newman. “If someone is incurring credit card debt for expenses that are marital in nature and/or customary for the marriage, then the credit card could be seen as marital debt,” she says. “Depending on which state you are in, you could start an action for divorce to try to have a cut-off date for the accumulation of assets and debts, but there are many strategic reasons this may not be a great idea.”

If possible, come to an agreement with your soon-to-be ex-spouse about paying them off, and then remove them from the account. If an agreement can’t be reached, make sure to include paying cards off in your budget so your credit score doesn’t take a hit. You could also consider taking out a personal loan to pay off credit card debt.

Call your card issuers and ask them to remove any authorized users from your account and/or close down your joint credit cards. It only takes a few minutes, but will bring you invaluable peace of mind.

Get new account numbers

While you’re on the phone with your issuer, ask them to send you credit cards with new account numbers, especially if you and your ex had joint cards. Ideally, everything will be resolved after removing an ex from your cards, but sometimes things can fall through the cracks.

What you want to avoid is having your ex rack up charges on your new credit cards. Not only could this cost you money, but it could also drag your credit score down. New account numbers can protect your cards and your credit history

Create a credit history

If you were an authorized user or a second user on joint credit cards, it’s time to build your own credit history. Although this can feel daunting, an easy first step is to apply for a credit card. If you have no credit history, Bankrate recommends these cards for no credit. If you’re rebuilding your credit, check out these Bankrate picks.

Use your new credit card to make small purchases or add a small bill that can be paid off every month. It’s important to make payments every month on time, because falling behind can cause a ding to the credit score you’re trying to build. If you aren’t ready to apply for a card on your own, consider asking a family member or friend to make you an authorized user to help you build your credit — and be responsible when using the card.

Watch your credit utilization rate

Nearly 40 percent of cardholders have maxed out a credit card or come close since the Federal Reserve began raising interest rates in March 2022, according to Bankrate’s Credit Utilization Survey. FICO recommends having no more than a 30 percent credit utilization ratio on your cards.

To understand what this means in practice, if you have a card with a $1,000 credit limit and a $750 balance, your ratio is 75 percent, which is considered to be high. Your balance should be $300 or less to stay at a 30 percent or lower ratio. Your credit utilization ratio is one of the factors used to determine your credit score, so keeping an eye on it will help you when applying for cards in the future.

Find new income sources

After my divorce, I had bills to pay and a much tighter budget to live on. That meant I had to find new ways to earn money, which included working in retail and helping people write resumes.

These days, there are far more side hustle options available to bring in extra cash, including online selling, driving for a rideshare service, food delivery, dog walking, tutoring and offering part of your home via Airbnb, to name a few. There’s also the option of creating passive income through channels such as YouTube, eBooks, affiliate marketing and sponsored social media posts.

Get help if you need it

You can’t do everything by yourself, but there are plenty of resources out there that can help. If you’re struggling with credit card debt, consider working with a credit counselor, such as the low-cost nonprofit Money Management International (MMI). MMI works with credit card companies to cut interest rates and set monthly payments that fit your budget, reducing the time it will take to pay off your debt.

Other professionals who may be able to help include:

• ​​A certified financial planner, who manages existing assets to help them grow
• A financial advisor, who can help you plan for things such as retirement, financial budgeting, estate planning and investment management
• A financial therapist, who can provide support if you find money stresses are hurting your mental health

Do your research to see which of these options can best help you as you rebuild, post-divorce.

The bottom line

Getting your credit back in shape after a divorce can be an overwhelming experience that requires patience and discipline. The key is keeping your eye on the prize when it comes to budgeting and rebuilding your credit history.

Avoid taking on unnecessary debt, and watch your credit score and utilization ratio. It may be a good idea to reassess your credit cards as your score rises. These strategies can help you rebuild your credit and take back your financial stability and independence as you start your newly single life.