Protect Your Credit Through a Divorce
Zach Silverman | Mar 13, 2024
Divorce can be a challenging and emotionally draining process, but it's essential to take proactive steps to protect your financial well-being, particularly your credit score. At Silverman Mortgage Group, we understand the importance of safeguarding your credit during a divorce and offer expert guidance to help you navigate this complex transition with confidence.
Here are some actionable tips to protect your credit through a divorce:
- Close Joint Accounts: If you have joint debt, you are both 100% responsible for that debt, which means that even if your ex-spouse has the legal responsibility to pay the debt, if your name is on the debt, you can be held responsible for the payments. Any financial obligation with your name on the account that falls into arrears will negatively impact your credit score, regardless of who is legally responsible for making the payments. A divorce settlement doesn’t mean anything to the lender.Close joint credit accounts to prevent further joint liabilities from accruing. Work with your spouse to settle any outstanding balances and request account closures in writing.
- Monitor Credit Reports: Regularly monitor your credit reports to ensure accuracy and identify any unauthorized activity. Address any discrepancies promptly by notifying credit bureaus and disputing inaccuracies. It's a good idea to check your credit report about three to six months after making any changes to ensure everything all joint debts have been closed and everything is reporting as it should be. It’s not uncommon for there to be errors on credit reports.
- Establish Individual Accounts: There might be a chance that you’ve never had credit in your name alone or that you were a secondary signer on your ex-spouse’s credit card. If this is the case, it would be prudent to set up a small credit card in your name. Don’t worry about the limit; the goal is to get something in your name alone. Down the road, you can change things and work towards establishing a solid credit profile.
- Update Contact Information: Update your contact information with creditors, banks, and financial institutions to ensure you receive important correspondence regarding your accounts.
- Seek Legal Advice: Consult with a knowledgeable divorce attorney to understand your rights and obligations regarding marital debts and assets. Develop a comprehensive financial plan to protect your interests throughout the divorce process.
- Negotiate Settlements Wisely: Negotiate fair and equitable settlements for joint debts and assets with your spouse. Consider factors such as income, assets, and future financial obligations when determining the division of marital property.
- Communicate Effectively: Maintain open and constructive communication with your spouse regarding financial matters. Collaborate on developing a mutually beneficial financial plan that prioritizes both parties' long-term financial stability.
- Consider Mediation: Explore mediation or alternative dispute resolution methods to resolve financial issues amicably and minimize conflict during the divorce process.
- Continue Making Payments: Continue making timely payments on existing debts to avoid negative impacts on your credit score. Prioritize essential expenses and debt payments to maintain financial stability during this transitional period.
- Seek Professional Support: Seek support from qualified financial professionals, such as Silverman Mortgage Group, to receive personalized guidance and support tailored to your unique mortgage financial circumstances.
At Silverman Mortgage Group, we're committed to helping individuals navigate life's challenges, including divorce, with confidence and resilience. Our experienced team offers compassionate support and expert mortgage advice to help you protect your credit and achieve financial security during this challenging time.
Contact us anytime and we're happy to help!
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It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!
When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.