It is very common for a client to tell me that they are very worried about their credit scores. In fact, I would say that this issue was raised by clients about 50% of the time in my initial interviews.
Credit scores are important. No doubt. Credit scores are used to determine the availability of credit and interest rates charged on loans. Important, indeed.
But for spouses facing a separation, I suggest that credit scores are not nearly as important as first thought.
The reality of the situation is that many couples try very hard to stay together before considering a separation. And that’s a good thing. Nobody should take the step rashly. It is a life-altering decision, not to be taken lightly.
But I also find that couples who are under stress are often not on the same “ page” when it comes to finances. One spouse’s financial priority is another spouse’s financial luxury. So often each party, well-intentioned indeed, go off in their own direction. One finances a family vacation on credit card because the children are young only once. The other leases a nice car because of the joys that a nice car brings.
Of course, each one has its own merit. And sometimes, the debt can be sustained because the parties are living under one roof. One mortgage payment. One Hydro payment. One insurance payment.
But then separation occurs, and housing expenses double. We now have two mortgages, two Hydro payments, two insurance payments.
So why not be concerned about credit scores? Well, a good credit score, all other things being equal, allows a spouse borrow money.
And, rarely do separating spouses need more debt. If anything, they need to restructure their financing to reduce debt.
Things to Consider
So rather than focus on credit scores, I suggest the focus should be on the following:
- Determining a financial plan that allows high-interest debt to be paid first;
- Postponing, to the greatest degree possible, large purchases which require financing;
- Working on a budget which recognizes the need to maintain two households;
- Especially in the first hours of the separation, it is difficult to get a grip on the financial situation. If, for whatever reason, a payment is going to be late or missed, contact the lender and advise them of the situation. This may buy some time or some goodwill.
This may sound perverse, but perhaps it’s a good thing if a spouse has a low credit score when they separate. In a way, it forces, albeit painfully, spouses to live within their financial means.
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