How Your Missed Mortgage Payment Because of Divorce Affects Your Credit Score

For many unfortunate people, divorce is a sad and complicated situation that they have to navigate at least once in their lives. The process can get very messy and mistakes made by one party can have grave effects on the other, especially when it involves significant assets, such as a house, that are in both spouses' names.

Consider this scenario: The court orders a husband to refinance the house he co-owns with his wife in order to take her name off the mortgage and deed. The husband duly complies, but mistakenly assumes he will close before the next mortgage payment is due on the existing loan. This doesn't happen, and the wife loses approximately 100 points off of her A-grade credit score.

There is nothing that the wife can do to rectify this situation. The wife is still deemed responsible for the mortgage payment because the bank was not informed of the court's order. Simple first-time problems like a missed mortgage payment affect higher credit scores much more than low credit scores. These circumstances will not change even if the husband speaks with the bank and offers to take the fall. At the end of the day, the wife's credit is already damaged and nothing can be done about it.

How will this incident affect the wife's finances? A 100-point loss will cost her about a quarter of a point on her next mortgage, assuming she has a great credit score of 750 to begin with. If she considers financing a new car, the damage becomes even worse. Because of this ding in her credit, the car dealership will be adding about 1.5% in extra interest.

Through this incident, we learn one often overlooked fact in divorce: You and only you are responsible for your credit history. It remained the wife's responsibility to ensure that her financial responsibilities were handled properly right up until the moment the transfer occurred even if the court ordered the husband to remove his wife from the mortgage. She should have been more involved given that closings on refinancing are notoriously difficult to schedule with precision.

One other thing consumers should remember that the number one purpose of the credit score is to clarify risk. Once you miss a payment or default on an obligation, it doesn't really matter why it occurred; you have increased the potential risk because if it happened once, it may happen again. Most banks and other creditors do not care to hear explanations or mitigating circumstances. Because of divorce, staying current becomes an individual responsibility again and it is important that soon-to-be former spouse work together to make sure that neither party is adversely affected by it.

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