How can I build or rebuild good credit after divorce?

Your divorce is long over, but you may be reminded of it every time you apply for a loan, insurance or other services. Why? Because a damaged credit report is often one of the after-effects of a divorce, especially when individuals don’t know how to protect themselves. Divorce can affect your credit rating in a couple of ways:

• Joint accounts must be divvied up and paid off. If the person who takes responsibility for the account in the divorce decree doesn’t pay, both spouse’s credit ratings may be damaged. (See FAQ “What happens to my joint accounts when we divorce?”)
• It is usually recommended that you close joint credit cards when you separate, so you won’t be responsible for future charges. This may leave you with a sparse credit history of your own, but is better than the risk of having a bad credit history that may takes years to rebuild, or getting stuck with new balances your ex runs up on joint accounts.

A strong credit history of your own is important and can save you a lot of money. A recent study found that if consumers raised their scores by an average of just 30 points, they’d collectively save more than $30 billion in finance charges on credit cards alone!

How do you rebuild credit after divorce?

The first step is to review your credit report with Equifax, Experian, and Trans Union. Under federal law, you can get one free copy per year, per agency, at www.AnnualCreditReport.com.

Next, dispute mistakes. A warning: what you may think is a mistake may not be. For example, a negative item won’t be removed immediately from your report just because you pay it off. Information about late payments can generally be reported for seven years regardless of whether they have been paid. Also, accurate information about joint accounts may be reported for seven years even if you’ve closed the account, or your ex is paying them.

Many credit repair firms specialize in disputing negative items, in an effort to get as many removed from your report as possible. While this may mean less work for you, don’t expect miracles. There are no “loopholes” that allow them to get negative items taken off your report if they are correct. To save money, you can dispute items yourself. The key is to be persistent and keep excellent records.

The next step, and the one credit repair firms often don’t tackle, is to build positive new references to boost your credit score. Strategies for quickly adding accounts when you don’t have strong credit include getting a secured card, piggybacking on someone else’s good credit, or getting a loan from friends or family members that will be reported to the bureaus (most aren’t). It is crucial not to overlook this step, as it will help you “put the past behind you,” and boost your credit score even if your report still contains negative items.

Gerri Detweiler is the author of The Ultimate Credit Handbook, host of EverydayWealth Radio: Your Consumer Advocate, and credit expert for EverydayWealth. To learn more secrets to protect your credit and finances before, during and after divorce visit www.DivorceMoneyHelp.com.