How Will Divorce Affect My Credit?

When I got divorced, I never really thought about my credit scores. To that point, I had a perfect payment record, a mortgage, two car payments, a home improvement loan, and a couple of credit cards. Add in 3 kids and a dog, and it was kind of the all-American family. My credit scores were in the high 700’s the last time I had checked them for a mortgage re-finance, so all was in order. I was living the dream.

Then, like a ton of bricks, the bottom fell out. Those 4 little words, ‘I want a divorce’, changed it all. When that happened to me, I stopped really considering the financial aspects of my life, and started thinking about the interpersonal and relationship areas. I went to classes, learned basic communications, and basically got things in order. But still, I just didn’t pay much attention to my credit.

Over time, that oversight caught up with me. When I first moved into my own place while separated, I went out and bought a TV and stereo on credit. Then I decided a couch would be a good thing, and a few pots and pans. Did I pay with cash? Of course not, I used credit.

That first few months, during the initial separation, were fine. My ex and I agreed on money, and I had enough to live. Then she actually filed for divorce. When that happened, the judge, in his infinite wisdom, gave us some ‘temporary orders’ which gave me $1,137.00 per month to live on. That was roughly a sixth of my take home at the time (Remember the dot-com days? Ah, the pay rates! The Perks! The worthless stock!) I did some math. I paid $450.00 for my car each month, plus insurance. $140.00 for the stereo and TV. $60.00 for the household items. $60.00 for the couch. Add in a 60 mile commute each way from the only place I could find that was cheap enough to live, and my bills ran up to about $1970.00 per month if I didn’t eat. This, by the way, is NOT a good weight loss plan. So, I had an $800.00 deficit in cash flow. That is a fancy term which means I lived on credit. It grew over the next year to about $12,000.00 in credit debt.

Then, the divorce happened. No more temporary orders! I GOT HALF OF MY TAKE HOME!!!
Talk about living well. I could afford Ramen noodles, and twice a week I would splurge and buy some soft drinks. I was living well! OK, actually it wasn’t that bad. I managed my money well, still hadn’t missed a payment, and was paying down my debt.

Then, wonder of wonders, I lost my job. The company closed in 2003, and the market was horrible. I went under.

Now, I can’t blame that on the divorce, but my credit got trashed trying to recover from the living expenses I charged. I ended up not being able to pay the cards or department store charges, and got 5 negatives on my credit report. More damage was done, but the divorce, and the subsequent payment problems, left me in real credit problems.

I still haven’t told you how this can affect your credit yet. Let’s take a look at that now.

The credit cards I used while on temporary orders were joint with my ex. So when I stopped making payments, it affected HER credit. The car was in both names as well, so that was a hit to her. And she decided paying for her car should be my responsibility without letting me know that, so the payments slipped there as well. That hit both of us with late payments on our credit reports.

Eventually I filed bankruptcy, and was able to clear my bad items off of her report by claiming them as part of the divorce. My credit, however, was trashed. This was clearly my fault, but it did happen.

I can give you another example. A friend of mine, Sherry, got divorced 8 years ago. Her ex had just gotten a workman’s comp settlement, and they had enough money to pay off all their expenses as they parted ways. It should have been an easy thing to take care of, but her ex was dishonest. Instead of mailing all the payments, he cleaned out their account and disappeared. Since Sherry had made out all the checks, she assumed the debt was gone. After a couple of months, her phone started ringing, and she discovered that she was over $50,000.00 in debt. Her ex was nowhere to be found, and had even stopped making child support payments. If she had handled the payments herself, and gotten certified funds to cover payments, he could not have caused this damage to her credit and lifestyle. She ended up having to take care of all the debt by getting on payment schedules, and she is still paying part of it off.

As you well know if you are reading this, emotions run high during a divorce. There is a lot of blame, many ill feelings, and you probably don’t care much about finances outside of basic survival. However, the impact of a bad decision regarding credit is at least 7 years of a negative item on your credit report, and the possibility of collections, court appearances, and even bankruptcy.

Let’s take a look at some of the things you can do to protect your credit when a divorce happens:

1) Get your own credit cards. If each of you wants to keep cards from the current vendors, do so, but make sure they are in one name only. Joint cards need to be cancelled, and new cards issued. Most credit card companies will allow you to get a new card with the same balance as the old, but in only one name, unless the credit line requires both of your incomes.

2) Put it in writing. Make sure that the debts you have are all accounted for, and that each of you acknowledges in writing what his or her responsibilities are. If one of you defaults, this can be used by the other to protect their credit report and standing to some extent.

3) Get your own bank account. You have every right to do this. You don’t have to share an account. I got an account at the same bank at which I had a joint account with my ex, and I used the old joint account to transfer alimony and child support to her. She doesn’t need to see how I spend my money, and I don’t need to see her spending habits.

4) Build a budget. Things have changed, and you probably don’t have as much disposable income as you once did. Don’t make the mistake of continuing to spend the way you used to. Remember, you are responsible for your own actions, and if you overextend, you will still owe the money. Programs like Quicken or Microsoft Money are great for helping with this, but a piece of paper and pencil will work just fine.

5) Get educated. If you have been relying on the financial knowledge of your spouse, you need to figure things out for yourself.

6) Protect yourself. If you are making payments for your debt, make sure the payment can be tracked. If you don’t trust your ex to make payments, you take responsibility for making the payment yourself, and get the money from your ex to make the payment. Remember, a joint account is the responsibility of both of you to pay, so make sure it gets paid on time.

Nothing about divorce is pleasant, but with a little planning and forethought you can protect your financial standing. Of course, if while married you have ended up with bad credit, a divorce can be a great way to re-start. No matter where you stand, make sure you look after your own best interests. After your divorce is final, you won’t have that particular partner, but you will still have your credit scores and standing, and working toward protecting it now can do you a world of good later.

One final note: When I was going through my divorce, far and away the best thing I did was to go through the Rebuilding Seminars. To get more information, or for other resources, you should go to http://www.divorceseminarcenter.com/ and look for yourself. Many of my best friends were made in these seminars, and the opportunity to be with people who are going through the same thing is priceless.

Why Collectors Are Buying Old Debt

It’s happening a lot now. An account you had forgotten about, from a different time in your life, suddenly shows up again as a Dunning Letter from a collection agency. You vaguely remember the address, and you are pretty sure you paid that off, but that was 15 years ago! It was your debt, but you don’t have records that far back. Why are they bugging you now?

The game has changed. There is old debt out there worth tens of billions of dollars that was believed to be un-collectable. In other words, the utility company didn’t know how to find you, so they never pursued the debt. This debt is very cheap to buy, and the fact is that a very small number of collections against it can generate large rewards for the collection agency, so they are willing to put in the time and effort to try to get a bbit of cash out of you.

Some collectors are unscrupulous (comes as a surprise, doesn’t it?), and don’t care who they collect from. They might add a negative to someone’s credit report even if they can’t verify the owner of the account. In that case, they are hoping the innocent victim will pay for a deletion of the account rather than take the time to fight it. In many cases, this is the cheapest way to go.
But again, why bother? Well, the original creditor wrote the debt off years ago. Now they see a way to make some cash back. So, they cell their debt for 3 or 4 cents on the dollar. Look at the benefit to the collector. They buy a million dollars worth of debt for, say, $40,000.00. Over a period of a month, they are able to bring in 10 percent, or a hundred thousand dollars. They make HUGE profits on a very few wins.

So, how do they prove the debt is yours? Well if the original creditor has a paper trail showing this is your debt (usually by a matching SSN), you are stuck. But often, they have no paper that proves the debt is yours. So, you can contest it, they can’t prove it, and by law they have to delete it from your credit report.

However, they often don’t delete it. They will change something, like the date reported, or the amount, but won’t delete the negative. And unless you act, they will have 7 years (in most states) that the debt will show up on your report.

What can you do? If this happens to you, the first thing to do is send a letter demanding proof. Not that they verify the debt, but that they prove it is yours. If they can’t prove it, you have a case against them.

The second thing is to call the original creditor and explain the situation. They may have simply made a mistake, and might be able to help you out.

Your next step is to dispute with a credit bureau. If you do that, the bureau has 30 days by law to respond, and if they get no proof they have to delete the data from their credit reports.

The point is, you need to do something. Check your reports, and take action against the bad. If you do that, your reports will improve, and you will save money over the long run.

The Top 5 Reasons To Check Your Credit Report

I check my credit scores and reports once a week. For a while, I checked daily, but that seemed a tad excessive. OK, maybe it was seriously paranoid. Alright, fine, I basically did nothing else. I went crazy. I wanted my reports CLEAN!

It’s true, I was in the process of cleaning my credit reports up. I spent a lot of time and a lot of effort learning how to get that done. And after I had reached my goals, I got kind of sick of it. Always trying to figure out what had changed, what was good, and what was bad. Not an easy task.

So, for a couple of months, I quit watching. Just let it go, pay your bills on time, and kind of relax. Then I got the letter…

Yep, Equifax wanted me to know that there had been a negative on my report. A collection agency had reported to my credit report for someone else’s utility bill in another state. I had never lived in that state, or gone by that name, but they accused me. So, I pulled my credit.
It wasn’t just one. I had three new negatives on my report. One, as I mentioned, wasn;t mine. The other two were. But, they were old! Also paid for, but that didn’t matter. One was a car loan I had paid in full 8 years earlier. The other was for a traffic ticket I actually contested in court. Since I had a copy of the car title, and could get a copy of the court record, those were easy to fix. They went away in a couple of months. But the other, the false claim, took 6 months and the threat of legal action before the collection agency would back off.

At the time it happened, it didn’t really matter. I was in good shape financially, and didn’t need to buy anything on credit. But what would it have been like if I was trying to buy a car, or a house? I wouldn’t have been able to. And, by the way, my credit scores went down by 110 points.

So, now I check once a week. If something shows up, I want to know about it. More than that has no purpose, and longer doesn’t give me the reaction time I need. But, it isn’t just about the invalid credit reporting. There are actually some really good other reasons as well:

1) It is an easy way to detect identity theft. If someone gets a hold of your SSN, in example, and opens a credit account, you will see it quickly and can get it cancelled before they do damage.

2) It is a great way to see who is checking you out. Any pull against your credit reports will show up as an inquiry. It is always nice to know that someone has done that illegally.

3) Your creditors may do something wrong. They have good intentions, but showing you as late, even once, can cause a 60 point drop in your scores.

4) Bad things could go away. If you have had late payments, collections, or defaults in the past, they will fall off over time. If you are actively working on the problems, they might go away much sooner. And THAT is a good feeling.

5) Because it is still kind of fun!

Credit is still kind of a big game to me. The rules are vague, and if you play hard you can win.
My recommendation? Buy into a service that let’s you check your credit, and use it. Over time, it can save you a ton of money, and a ton of time.

Why Do We Need Credit Education?

I was thinking about the credit crisis in the US today, and I think the experts are wrong.
When you read about the problem, the concensus seems to be that we use charge cards too much, that the government is encouraging the public to spend through lower interest rates rather than save money for the future. We read of evil banks, dishonest mortgage companies, and credit card companies charging outragous fees, all trying to take your hard-earned money away from you.

Then, as soon as we get in trouble with credit, we have someone bail us out. Credit counseling companies, bankruptcy courts, even the government trying to make sure that your mortgage doesn’t get called in. And as soon as one problem is fixed, we go out and make it worse by charging something else.

Now, don’t get me wrong, I believe in credit. When you are buying a house or car, I think credit is a great thing, as it allows you to extend your earning power to buy something you otherwise wouldn’t be able to get. I also think a credit card is great if used properly. If you are travelling, or have a sudden problem crop up, credit is a wonderful thing to have. But most of us don’t stop there. We buy expendable goods (Food with credit? Yep, GREAT decision!), so that the price of an item is severely inflated. We charge way more than we can possibly pay back in a timely fashion. And then, when we are paying hundreds of dollars a month in interest, we wonder how we got into this position!

Indeed, I think the experts are wrong. They blame financial institutions, or the government, but the real culprit is a lack of credit education.

I’m 42 years old. When I went to high school, they taught me how to balance a check book. I have a kid in high school. He just learned the same thing. Now, honestly, how many people do you know that still write checks? I don’t even know where my check book is! And even if I did, my debit card is just too handy.

So we sit here handing out credit cards to young adults in college, and they have no idea what an interest graph looks like. Or that interest is usually paid first on a loan. Or that a missed payment increases your rates. They don’t get it!

When I was 21, I got married. Prior to that, I lived in a house with an under-the-counter fridge, a pot, a skillet, and a chair. I was pretty well off! Then, my new bride moved in. Wierdly, she wanted cold food and clean clothes! Women…

So, off we went to Sears, where, wonder of wonders, they gave us CREDIT! We got a fridge, a couch, and a washer and dryer. Just 21.99% interest! Only going to take 5 years to pay off! FREE for 90 days!

My credit debt outlived the couch. It nearly outlived the marriage. But, I learned the hard way.

If only our kids didn’t have to do that.