SOME CREDIT MYTHS - BUSTED!

MYTH: A divorce ruling will release you of your credit obligations

BUSTED: Going through a divorce is difficult enough without having to worry about separating credit debts. Unfortunately, it’s certainly one of the most important items to focus on as you are navigating through a divorce.

Generally part of the process is separating the credit debts. Here the judge will decree that one or the other spouse will be liable for making payments on car loans, mortgages, credit cards and other credit obligations. That’s fine but the judge’s decree doesn’t override the agreement that you signed with your creditors. 

So, if you and your spouse both signed to take out a mortgage or a car loan and it stops being paid by the newly liable party then both of you will suffer. The lender will almost certainly report the late payments on both of your credit reports and if the account goes seriously delinquent or even into the dreaded collection or charge off status then your scores will suffer for years despite what the judge said.

MYTH: Once I pay off a collection account or charge off it will be deleted from my credit report and will no longer affect me negatively

BUSTED: Paying off collections and charge offs will not improve your credit score and could very well lower it. It will not be deleted just becuase you paid it. Actually you will start the clock ticking again and it will remain on your credit report for 7 more years.

Once you pay the account it will change the status to paid, satisfied or settled. This is still very negative on your credit report. It is best to seek professinal help so that you do not create more damage to your credit report by "doing the right thing".

MYTH: Closing credit cards - after paying off a massive debt load - is a great idea

BUSTED: While it may feel good to kiss that card goodbye, it's not necessarily a smart move.  Closing credit card accounts may actually increase what's known as your debt-to-credit utilization ratio, which is the sum of all your outstanding credit card debt divided by the sum of all your credit card limits.  

A higher utilization is considered risky by the credit bureaus and can potentially drop your score - in the wrong direction. It can also affect your length of credit history which makes up 15% of your score as well. To maximize your score, try to use no more than 10% of all your available credit.

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