Does divorce hurt your credit score? here’s what you need to know

Maintaining a good credit score is important for anyone to be able to secure a personal loan or credit card on convenient terms and conditions. It is normal for married couples to run a joint bank account and credit card.

But what happens to these credit cards and accounts in case of divorce? Oftentimes, these accounts are not settled, thus impacting your credit score.

So, do divorces lead to an impact on credit score? Not directly but these can lead to situations where credit score becomes a casualty. Therefore, before going ahead let us first understand what a credit score is. Then we will understand the scenarios that can impact credit scores when couples are going through separation.

What is a credit score?

A credit score is simply a three digit number that reflects a borrowers repayment integrity and creditworthiness based on factors such as repayment history, past loan records, credit utilisation. A higher credit score increases chances of getting personal loans at better interest rate loans.

Credit score range and meaning

Note: Credit scores are illustrative in nature. For accurate info, contact your credit bureau. A score above 750 boosts personal loan approval chances. Pay EMIs on time, keep credit use low, and consult your bank before applying.

These could be four such scenarios:

1. Joint bank accounts stay joint until they are closed: Once divorce takes place, especially in cases where both names are on a loan (such as a personal loan, or credit card), both the partners remain legally accountable. If your ex partner happens to miss a payment, your credit score can suffer.
2. Due to financial stress: Divorce often results in legal fees, living separately, and splitting of incomes. This can lead to decline in income, and thereby missed EMIs or credit card bill payments.
3. Credit contracts: It is surprising but true that even if a court tells one partner to clear debt, the bank is still authorised to make the one who signed the loan accountable. So, if your name’s on the loan, you can be made responsible.
4. Long-standing accounts: If you happen to close joint accounts or credit cards, it may squeeze your credit history or reduce your credit utilisation ratio—both of which have an impact on your credit score.

Therefore, keeping the above factors in mind, all credit card and personal loan applicants should also keep these general rules in mind, to keep their credit scores flying high.

5 smart ways to improve your credit score 

1. Pay EMIs and credit card bills on time: Ensure that you make payments of personal loan EMIs and credit card bills on time. So that you are able to build a credit score.
2. Keep credit utilisation below 30%: For example, if your credit card limit is ₹1,00,000 then you should never use more than ₹30,000 of this permitted limit. So that lenders never look at you as credit hungry.
3. Maintain a healthy credit mix: A combination of secured (like home loans) and unsecured (like credit cards or personal loans) credit improves your creditworthiness and reflects responsible borrowing habits.
4. Avoid frequent loan and credit card applications: Too many credit inquiries in a short period of time can lower your credit score. That is why you should only apply for a new loan when it is absolutely necessary and avoid multiple applications to protect your credit score.
5. Check your credit report regularly for errors: Review your credit report from bureaus such as CRIF High Mark, Experian among others. Post the same, promptly dispute any errors, such as incorrect defaults or duplicate accounts, to prevent damage to your credit score.

For all personal finance updates, visit here.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.