Atlantic Bay Mortgage Group

PROTECTING YOUR CREDIT DURING DIVORCE

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Introduction............................................................................................4

3 steps to maintain a healthy credit rating during a divorce...............4

How to get started.........................................................................................5

Contact your Atlantic Bay Mortgage Banker.............................................6

The five factors of credit scoring..................................................................7

Disputing errors on the credit report.......................................................8

Do’s and don’ts during the loan process....................................................10

Notes...............................................................................................11

Table Of Contents

IntroductionWhen a marriage ends in divorce, there are always financial issues that each couple faces. During this time of uncertainty, your credit shouldn’t have to suffer. However, many people face credit issues during the divorce process. Most of this is due to false promises to pay bills, maxing out your credit cards for expenses, and a breakdown of communication between the parties. Depending upon how each financial obligation is structured, both parties may suffer if they don’t learn the steps to protect their credit.

3 Steps To Maintain A Healthy Credit Rating During A Divorce

1. OBTAIN COPIES OF YOUR CREDIT REPORTS

Get all 3 major agency credit reports: Equifax, Experian, and Transunion. You can get one for free by visiting www.AnnualCreditReport.com.

2. CREATE A LIST OF ALL THE ACCOUNTS THAT ARE OPEN

Making a spreadsheet with all the pertinent information will also help you prepare for your attorney meeting.

3. MAKE A PLAN

You’ll want to address the unsecured accounts first and then work on resolving how to handle your secured accounts.

Once you obtain all 3 credit agency’s credit reports, you’ll want to organize all your account information in either a spreadsheet or you can complete the chart we’ve provided. You’ll want a comprehensive list of all your accounts that are open that lists the following information: Creditor name, contact number, account number, type of account (car loan, credit card, etc.), account status (current, past due), account balance, minimum monthly payment, interest rate, and who is the vested in the account (joint/individual/authorized user).

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How To Get StartedOnce you obtain all 3 credit agency’s credit reports, you’ll want to organize all your account information in either a spreadsheet or you can complete the chart we’ve provided. You’ll want a comprehensive list of all your accounts that are open that lists the following information: Creditor name, contact number, account number, type of account (car loan, credit card, etc.), account status (current, past due), account balance, minimum monthly payment, interest rate, and who is the vested in the account (joint/individual/authorized user).

You’ll want to sort your sheet by type of account/credit (secured/unsecured) because each type is handled differently during a divorce. A secured account means that it is attached to an asset. The most common types of secured loans are mortgages and car loans. You’ll also find most personal property items like boats and motorcycles are also tied to a secured loan. The other type of account is an unsecured loan. These accounts are typically credit cards and have no assets attached to them.

The easiest way to deal with a secured asset is to sell it. This way the loan is paid off and your name is no longer associated with the debt. The next option would be to refinance the loan so that one spouse can “buy out” another spouse. This assumes that the spouse wanting to keep the asset can qualify and pay for a new loan. Lastly, it is possible to keep a loan with your name tied to it but it is considered highly unfavo and risky. Even if the divorce decree states that your spouse must pay for this debt, as long as your name is on the loan, you are also obligated – in the creditor’s eyes. This means that if your spouse misses a payment, it will negatively affect your credit score as it would if you were the only person on the account. Should you encounter a scenario where you must keep the loan in both of your names, make sure you keep your name on the title.

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Contact Your Atlantic Bay Mortgage Banker

In the case of a mortgage, working with a licensed mortgage banker is extremely important. Your mortgage banker will review your existing home loan along with the equity you’ve built up and help you to determine the best course of action.

When sorting out your unsecured loans, you will want to act quickly. First, remove your name from any account where you are merely an authorized user. If you have an account where your spouse is only an authorized signer, have them removed immediately. Any joint accounts that are open without a balance, try to split the accounts and remove the other spouse’s name. This will also allow each of you to have an account where the credit history remains with the person who continued on the account. Closing accounts completely can affect your credit score, so be sure to consult with your mortgage professional prior to closing an account.

For any joint accounts with balances, your best option is to have them frozen to ensure no future charges can be made. When you freeze an account, it freezes for both parties. If you don’t have any credit cards in your own name, it is recommended that you obtain one before freezing all your jointly vested accounts. Once you have an account in your own name, you can transfer the balances from your joint account to your name to ensure they will get paid on time. You’ll want to consult with your attorney prior to taking this action to ensure it doesn’t negatively affect your future settlement options.

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The Five Factors of Credit Scoring

Credit scores are comprised of five factors. Points are awarded for eachcomponent, and a high score is most favourable. The factors are listedbelow in order of importance.

1. PAYMENT HISTORY – 35% IMPACT

Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carrymore weight than older items.

2. OUTSTANDING CREDIT BALANCES – 30% IMPACT

This factor marks the ratio between the outstanding balance andavailable credit. Ideally, the consumer should make an effort tokeep balances as close to zero as possible, and definitely below30% of the available credit limit when trying to purchase a home.

3. CREDIT HISTORY – 15% IMPACT

This portion of the credit score indicates the length of time sincea particular credit line was established. A seasoned borrowerwill always be stronger in this area.

4. TYPE OF CREDIT – 10% IMPACT

A mix of auto loans, credit cards, and mortgages is more positivethan a concentration of debt from credit cards only.

5. INQUIRIES – 10% IMPACT

This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a six-month period. Each hard inquiry can cost from two to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six-month period will have no further impact on the borrower’s creditscore. Note that if you run a credit report on yourself, it will haveno effect on your score.

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Disputing Errors On the Credit ReportIf you are in the process of reviewing your credit reports, the first thing to do is make sure that the information contained within the reports is correct. In June 2004, The U.S. Public Interest Research Group published the results of a survey it conducted involving 200 adults in 30 states to test the validity of credit reporting. Their findings were as follows:

• Twenty-five percent (25%) of the credit reports contained errors serious enough to result in the denial of credit;

• Seventy-nine percent (79%) of the credit reports contained mistakes of some kind;

• Fifty-four percent (54%) of the credit reports contained personal demographic information that was misspelled, long out-dated, belonged to a stranger, or was otherwise incorrect;

• Thirty percent (30%) of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

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If you find that you have errors on your credit report, follow this procedure to correct those errors.

1. Make a copy of the report and circle the item(s) you are questioning. Keep your original copy for your own records.

2. Prepare a letter to the CRA that provided you with the report in question and request to have the erroneous item(s) removed. If you have proof of payment for an item in question, include a copy of that documentation.

3. Prepare a letter to the creditor reporting the problem, especially if you feel you are a victim of fraud or identity theft. Inform the creditor that you are disputing an error reported to the CRA, state why the claim is inaccurate, and include any relevant documentation to prove your point.

4. Send your correspondence via certified mail.

You should receive a response from the CRA within 30 to 45 days. If the error has been corrected, they will send you a fresh copy of your credit report at no charge to show you that the item has been removed. They will also send a corrected report to any entity that received a report that contained errors within the last six months.

If you cannot have a disputed item removed, you have the right toinclude your side of the story on the credit report. Your statement should be a concise explanation (100 words or less) as to why you are challenging the item in question. From that point on, this notation will be included in your credit report as long as the item in question remains on your report.

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DO join a credit watch program

Your bank, credit union or credit card company may be able to provide you with a free credit watch program that can alert you to any changes in your credit report. This can be a safeguard to help you intervene before the underwriter sees a problem.

DO stay current on existing accounts

Late payments on your existing mortgage, car payment, or anything else that can be reported to a CRA can cost you dearly. One 30-day late payment cancost anywhere from 30 to 75 points on your credit score.

DO continue to use your credit the way you normally would

Red flags are easily raised within the scoring system. If it appears you are diverting from your normal spending patterns, it could cause your score to go down. For example, if you’ve had a monthly service for Internet access billed to the same credit card for the past three years, there’s really no reason to drop it now. Again, make your changes after the loan funds.

DON’T apply for new credit of any kind

If you receive invitations to apply for new lines of credit, don’t respond. If you do, that company will pull your credit report and this will have an adverse effect on your credit score. Likewise, don’t establish new lines of Credit for furniture, appliances, computers, etc.

DON’T pay off collections or charge-offs

Once your loan application has been submitted, don’t pay off collections unless the lender specifically asks you to in order to secure the loan. Generally, paying off old collections causes a drop in the credit score. The lender is only looking at the last two years of activity.

DON’T max out or over charge existing credit cards

Running up your credit cards is the fastest way to bring your scoredown, and it could drop up to 100 points overnight. Once you areengaged in the loan process, try to keep your credit cards below 30% of the available credit limit.

DO’S & DONT’SDuring The Loan Process

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Notes

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For More Information,CONTACT ME TODAY

RHONDA F. BRANYANMortgage Banker,

NMLS #115458

600 Lynnhaven Parkway, Suite 100Virginia Beach, VA 23452

Direct: 757-303-3397Office: 757-227-4960

E-mail: rhondabranyan@atlanticbay.comWeb: www.atlanticbay.com/rhondabranyan

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Revision Date: July 2014