Episode Description - Divorce Credit Mistakes That Can Cost You For Years
If you're going through a divorce, there's a financial landmine hiding in plain sight that most people don't even think to check … and it could cost you years of headaches after your divorce is over. In this podcast episode, consumer protection attorney Jim Smith explains how credit reports actually work, why errors happen more often than people think, and how consumers can spot credit mistakes during their divorce before they cause serious financial damage afterward.
Jim explains how common credit mistakes, from identity theft to identity confusion and mis-reported credit information, can quietly wreak havoc on your credit score. He also walks through the specific red flags you should look for when reviewing your own report. He also reveals the one legitimate website where you can pull all three of your credit reports completely free, and how to tell the difference between a soft and hard inquiry.
Jim also talks about the divorce-specific scenarios that most people (and even many divorce attorneys!) never even think about. From joint credit cards to authorized user accounts, Jim outlines the surprisingly easy steps that, if taken during the divorce process, could save you from a financial nightmare on the other side.
Show Notes
About Jim
Jim Smith is a consumer protection attorney with over 20 years of experience litigating under the Fair Credit Reporting Act. He specializes in reviewing credit reports during divorce to help clients identify errors, identity theft, and joint account issues that could impact their financial future post-divorce.
Connect with Jim
You can connect with Jim on LinkedIn at James Smith. To learn more about working with Jim, visit his website at Fair Credit Attorneys.
Free Annual Credit Report
You can get your free annual credit report at annualcreditreport.com.
Key Takeaways From This Episode with Jim
- Jim Smith is a consumer protection attorney with over 20 years of experience litigating under the Fair Credit Reporting Act.
- He specializes in reviewing credit reports during divorce to help clients identify errors, identity theft, and joint account issues that could impact their financial future post-divorce.
- Credit reports contain all accounts where you've borrowed money and must pay it back, including credit cards, car loans, and mortgages reported by furnishers to the three major credit bureaus.
- You can pull your free credit report annually from all three agencies—Equifax, Experian, and TransUnion—using annualcreditreport.com, the only legitimate free source.
- Errors on credit reports often go undetected until you apply for major credit like a mortgage, when lenders scrutinize your file with a fine-tooth comb.
- Each credit reporting agency may contain different information, so checking only one bureau leaves you vulnerable to errors or mixed files on the other two.
- The Fair Credit Reporting Act requires credit bureaus to fix disputed errors within specific timeframes, and consumers can pursue legal claims if agencies fail to comply.
- Red flags like unfamiliar addresses, phone numbers from states you've never lived in, or name variations indicate potential identity theft or file merging that requires immediate attention.
- Your credit report is one of the most powerful financial tools you have, especially as you navigate divorce and rebuild your independent financial life.
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Transcript
Divorce Credit Mistakes That Can Cost You For Years
SUMMARY KEYWORDS
credit repair, identity theft, consumer rights
SPEAKERS
Karen Covy, Jim Smith
Karen Covy 0:10
Hello, and welcome to Off the Fence, a podcast where we deconstruct difficult decision making so we can discover what keeps us stuck, and more importantly, how we can get unstuck and start making even tough decisions with confidence. I'm your host, Karen Covy, a former divorced lawyer, mediator, and arbitrator, returned coach, author, and entrepreneur.
And now without further ado, let's get on with the show. With me today, I have the pleasure of talking to Jim Smith. And Jim is an attorney who litigates under the Fair Credit Reporting Act. He helps review credit reports during divorce to provide peace of mind to his clients after divorce. Jim, welcome to the show.
Jim Smith 0:58
Thanks for having me, Karen. Really uh happy to be here.
Karen Covy 1:01
I'm thrilled to have you. I was so excited from the minute I met you because I have never heard of anyone who does what you do. Um it's fascinating.
Jim Smith 1:12
Well, and it's got a sort of a round and about way for how I learned what I do is relevant to somebody going through a divorce, too. That that took some time uh to figure out.
Karen Covy 1:23
Okay, so let's just dive in right there. What, A, what do you do? And B, how is it relevant to someone going through a divorce?
Jim Smith 1:33
Sure. So uh super good questions. Um, so what I do is uh I I've been a consumer protection attorney for the last 20 years or so. And one of the consumer-friendly laws that I've litigated under is called the Fair Credit Reporting Act. It's a federal law, it allows me to represent consumers where they don't pay me uh you know an upfront fee. So all of the work is contingency fee-based. And I file cases all over the country in federal court. And the idea is under the Fair Credit Reporting Act, if you have errors on your credit reports or consumer reports, and those errors are causing you damage, uh, there's mechanisms in place for consumers to dispute the errors, and the credit reporting agencies have to fix those errors within certain time frames. And if they don't get fixed, there's legal claims that the consumer can pursue. So I will help consumers pursue those claims. And there are oftentimes identity theft accounts on people's credit that shouldn't be there. There are, you know, my name is James Michael Smith. So there could be another James Michael Smith from Chicago, and that person's credit file got mixed with mine. Uh, and it's difficult to unwind some of that stuff. So that's what I started. I've been doing that pretty much primarily as a litigation side of what we do since 2019. So almost seven years.
What A Credit Report Really Is
Karen Covy 3:03
Okay. Let me stop you right there. I know you've got more to say, but there is so much I want to ask you about, even in what you did say. So the you said the Fair Credit Reporting Act is a federal law. Um, does that mean that you can represent people all over the place? Are you limited in two particular states?
Jim Smith 3:22
No, I can I we represent people all over. So we've got cases in Hawaii, Texas, California, New Jersey, uh, you name it. We can file just about anywhere.
Karen Covy 3:33
Okay, so how does somebody know if they have a problem with their credit report? Like do they it does do they just figure it out when they go to get a new car and they get denied or how do they know this?
Jim Smith 3:48
Uh so great question. And that's pretty much it. So um you don't know it until you need your credit. So if there's a problem there and you haven't been monitoring it, uh, and then you need credit because you're gonna refinance your mortgage or you need a car or whatever the case may be. And it's really a lot of times you're applying for credit and you don't find out that there's a problem. So if you're in Kohl's and you and you're gonna apply for the new Kohl's card, uh you'll get qualified even if there are errors there. But if you sit down to uh talk with a mortgage broker and you want to get qualified for a mortgage loan, now somebody's gonna go through it with a fine-tooth comb and they're gonna identify some bad information that might be there. And it's all news to the consumer because they didn't realize that there were these accounts there, or maybe there's a balance reporting on it on a legitimate account that was paid off years ago, but it's still reporting that you owe the money. There's uh there's numerous errors that show up on credit reports that people just didn't know. So generally, it's when they're looking for a home loan, uh, is the big piece uh when people learn that there's a problem.
Karen Covy 5:00
So, you know, people talk about getting a credit re credit report and pulling a credit report. You and I know how the system works because we're lawyers and we've dealt with this kind of thing before. But for most people who don't understand that, can you explain a what is a credit report and how do people go about pulling their credit report?
Jim Smith 5:23
Yeah, that's sure. Um, so a credit report is any, as soon as we have a credit card or a car loan or a mortgage, anything that's credit in which we have to pay it back. You know, uh sometimes it's monthly, sometimes it's different than that. But when you have a monthly credit in which you're paying an entity back, those creditors are called furnishers. So they furnish information to the credit reporting agencies like Experian, Equifax, and TransUnion. So I have an American Express credit card. Uh I signed up with American Express and I use the card. Uh, and then they send me a monthly statement, and I have to pay that off every 30 days. If I am late, by more than 30 days, my credit report will reflect that I was more than 30 days late and my credit score will go down. Uh so the idea is, and if you and if you pay them on time, your credit score will be good. Um, if you have too much credit, your credit score will go down. If um uh you don't have enough credit, your credit score will be low. So there so there's these sort of private algorithms on our credit scores, but that's what a credit report is all about is uh excuse me, my phone's ringing. Um it's about having a centralized place that sort of grades your ability to pay back credit. And uh if you're gonna have a creditor or furnisher put information on your personal credit report, it has to be accurate.
Karen Covy 7:04
Okay. So people go, and you mentioned Equifax, TransUnion, and Experian. Those are the three credit uh do they call them credit reporting agencies?
Jim Smith 7:16
Exactly. Yep, those are the big three credit reporting agencies.
How To Pull Legit Free Reports
Karen Covy 7:20
So let's say I, as a consumer, want to go check my credit report. If I type in into Google, um how can I get my credit report or free credit report, right? Um, which I've done before, all kinds of ads pop up and things pop up, and usually free doesn't mean free. So how does all of that work? What should someone do be if they really want to get a free credit report and see what their credit's like?
Jim Smith 7:49
Uh that's a great question because there are a lot of entities out there that say it's free, but it's not really free. So there is one good place to go and get a free credit report. It's annualcreditreport.com. You're allowed to get a free credit report from Equifax, Experian, and TransUnion with no uh, you don't pay for it. And it's a legitimate credit report, it's not a scam. It's the one place you can go to get a free report. It does not give you your credit score, but it does give you uh a good understanding of what is on your credit report. And again, that's annualcreditreport.com. If you go to someplace other than that, uh they're likely trying to sell you something along the way. Um, it's not free. But annualcreditreport.com is a reliable place to go to get a free credit report without a score.
Karen Covy 8:46
So if, you know, we for those of you who are listening, we will link to the annualcreditreport.com in the show notes for you. But you mentioned and we've talked about three different credit reporting agencies. Are they all separate? Like, do I have to when I'm pulling my annual credit report, do I is it wise to pull one from each one of the three or just one of the three, or how does that work?
Jim Smith 9:12
Yeah, another great question. So it's uh a good idea to pull all three. Um because the furnishers have to report to all three, or they may choose to report to all three, but that information might not be the same on all three. So just because you pull your experience credit report, and let's say that you look through it and you paid really close attention, everything looks accurate and great. That doesn't necessarily mean the same applies for the other two credit reporting agencies. So you have to pull uh each one and look through each one very closely. And so the example of me using my common name and having somebody mixed with um with my file that shouldn't be there. Generally, when that happens, it only impacts one of the three credit reporting agencies. So it'll be some snafu within Equifax or Experian or TransUnion that's merging these two accounts together, but it's not happening with the other two. Um Yeah, so if you're gonna pull one, you should pull all three, and then that'll give you peace of mind.
Karen Covy 10:12
And how often can you or should you pull your credit report if you want a free one?
Jim Smith 10:19
Uh my recommendation is you pull it every year and just do a check every year. You can get it for free every year. I think actually right now you can get it free through annualcreditreport.com more frequent than annually. Wow. Um, but there's part of the Fair Credit Reporting Act that indicates they have to at least annually allow you a free report. Uh, some people, which is a good plan, is they'll pull one quarterly. So they'll pull in the beginning of the year, they'll pull Equifax, then three or four months later, they pull Experian, then three or four months later they pull TransUnion, and they just kind of keep that rotation going. And that's a fine plan. But I would I would do a deep dive, and then once you do a deep dive and you understand everything's good, then you check annually.
Karen Covy 11:04
So you keep talking about checking what because I've pulled my own credit report and I look at it, and I am a lawyer, and I and it's just it's it looks complicated and daunting. And what is it when people look pull these reports? What are they looking for?
Jim Smith 11:20
Yeah, so they are daunting. Um, and there is a lot of dense information, and some of it probably isn't that relevant to you, but it's there anyway. So it is difficult to kind of go through them. Uh, it takes um you have to spend some dedicated time, some quiet time, and go through it to really kind of understand it. But what you're looking for, what I do when I do a detailed credit review with people is I just start at the top of the report, which is where their names, their addresses, their phone numbers, their employers are listed. And we just go through to make sure it's all accurate. Um, because if there's going to be an identity theft problem, oftentimes there's a wrong name, maybe a same first name but different last name, maybe vice versa. There'll be an address from a state that you never lived in. It's you know, a red flag. Uh, there might be some phone numbers that don't make sense to you. So those are all things that you should be generally aware of in the very beginning when you're going through a report. Uh, and if they are wrong, it doesn't necessarily mean identity theft. It could just be some strange or bizarre error that got there just with no fraud going on at all. Um, but it's something you want to be aware of.
And then as you go through, you want to first identify it'll have the account name and a little indication of what that account is. So if it's an American Express, it'll say maybe revolving credit card. And so you just want to make sure that the account makes sense, that it's a credit card that you've opened. Um, and then what I look at is whether it's open or closed. Uh I look at if it's open, does the balance reflect what the balance seems like it should be to me? Um, I look at whether it's a joint account or an authorized user account, uh, or if it's just mine. And then I'll look at the there's a payment status history, whether you're paying every on time every month. Um, and I'll make sure that it's reporting accurately in that regard. And then you go down to the next account and do sort of the same kind of check, and you go down all of your accounts, and in the very bottom, there'll be a hard inquiry section. Uh so this is another part of your credit report that could be an indicator that somebody has your information and they're trying to open up credit in your name, is if there's hard inquiries reflected that you have no idea about. You know, if there's like a capital one hard inquiry and you haven't applied for a capital one card that you can remember in the last two years, if there are some hard inquiries there, that means somebody might have your credit and they're trying to open up credit in your name.
Karen Covy 13:55
Okay, let's say that happens. Either you know, you see these hard inquiries that you never authorized or there's some mistake. What as the consumer, what do you do?
Identity Theft: Steps That Matter
Jim Smith 14:09
Yeah, so uh you just kind of draw a circle around all of the objective erroneous information that you have there. And then it depends on what the error is. If it's identity theft and it seems like somebody is stealing your identity to open up fraudulent accounts, you need to take that information, uh, under identify the name that's wrong, maybe the hard inquiry that's wrong, maybe there's an account that's open in your name that's not yours. You want to have a good understanding of what that is, then you have to go to the police department and submit a police report. So and the police department the feedback I get from clients is that they're not always that helpful because there's not much they can do. Um so consumers will get sort of they don't want to bother the police. It's not something the police can really, you know, they're not gonna go find who the thief is, but it's important to have it, and sometimes it's absolutely necessary to have it because you have to, when you fill out a police report, you're testifying that you're telling the truth to the police department, and you get sort of a sworn report that this is what your allegations are. And if you have that and you're giving it to, let's say, American Express, um, they will need that, that sort of that you've made that commitment to swear under penalty of perjury with the police department that this is not yours. So it's a step that's a significant and important step in order to convince a creditor that it in fact isn't yours. So that police report is a difficult process for some people, but it's necessary if it's identity theft.
Karen Covy 15:49
Okay, so you find there's this problem, you go to the police, you make a report, but the police aren't going to solve your problem. So now what do you do?
Jim Smith 15:58
Yeah. So now you take the police report and you draft a dispute letter to Equifax, Experian, TransUnion. Um, and you include the police report, you include a copy of your driver's license, you include a copy of your social security card, all so that you can prove to Equifax Experience Transunion that you are who you say you are. And then you tell them, look, at this account is on my credit report, it's not mine. I believe I was the victim of identity theft. Please remove it from my credit file. So you send that off to those entities, and they've got 30 days under the Fair Credit Reporting Act to do an investigation.
Karen Covy 16:37
Okay, so you're not going directly, let's say it was Capital One that made a hard inquiry and you have no you didn't authorize them to do that, right? So you're worried that that was the beginning of identity theft. You go, you still go to the credit reporting agency with your issue, not to Capital One.
Jim Smith 16:55
Well, you could you could go to both. Um so going to the credit reporting agency starts a clock ticking under the Fair Credit Reporting Act. They have to act. And part of that is within five days, they have to send your dispute to the creditor.
Karen Covy 17:11
Okay.
Jim Smith 17:11
And so then the creditor has to investigate. But I will advise people to do both. You send one directly to the creditor, but you have to send one to the credit reporting agency because if you just send it to the creditor, there's no clock that starts ticking. They're under no um pressure or obligation to do anything in any sort of time-sensitive manner. And because there's nobody holding their feet to the fire, they could get back, you know, you know, 60 days later, 90 days later. Sometimes they never get back at all, uh, which is not unusual. Um, but if you send it to the credit reporting agencies, the clock starts to tick.
Karen Covy 17:50
Okay. And then the clock is ticking, so the credit agency, credit reporting agency is doing an investigation. What happens after that?
Disputes, Timelines, And Proof
Jim Smith 18:02
Sure. So to just to clarify, the investigation would be the credit reporting agency sends your dispute in all the enclosures to the original creditor. Then the original creditor has to review their files, review the information that they just received, do their own investigation. Then they reach a conclusion and send the conclusion to the credit reporting agencies, Equifax Experience TransUnion. Then Equifax Experience Transunion has to do their own re-investigation, uh, which generally we've learned just means they do nothing other than rely on what the creditor says. But they're supposed to do their own re-investigation, look at the enclosures and everything else. And then they have to give you the results all within 30 days. And if it if the error is not fixed in this identity theft scenario, if the identity theft count is still there, now I would argue or at least review to determine whether you have a valid Fair Credit Reporting Act claim that you could pursue against the credit reporting agencies and the original creditor.
Karen Covy 19:04
Okay. And let's say well, let's start basically. How do you know if you have a claim?
Jim Smith 19:12
You know, it's all facts, fact-intense uh review. Um, so if you if you have a good police report, um, you know, they also there's a FTC identity theft affidavit that we encourage people to file. If they file one of those, uh the dispute letter was well written. Uh, we know that there was certain this the letter was sent certified mail, so they know they did they received it. We know it's been like 45 days, so they've had plenty of time to do the investigation, and it's still not fixed. Uh we would we would recommend that there's likely a you know a claim here and we pursue it at that point.
Karen Covy 19:51
So what I'm hearing you say, because this is it sounds very technical to me, like there's a lot of details, like you mentioned certified mail, and the it's gotta be a good letter, whatever that means. So if I'm the consumer, if I'm just the person who's doing that, what I'm hearing is go to Jim because I'm not gonna know what I'm doing.
Jim Smith 20:14
Uh yeah, you don't know what you don't know, um, is right. So that's true. Um that's it's uh it's unfortunate too because there's a lot of companies they call themselves credit repair companies out there. Yeah. Um and some of them are good and they ean well and they want to help their clients and everything else, but there's a lot of ones that have shown didn't did not do those things, and they will dispute accurate accounts and are and just pretend they're inaccurate, all in order to get bad derogatory information off a credit report to boost somebody's credit score. You know, so there's a lot of bad disputing that's going on out there, and as a result, um that m it muddies the water even more. You know, so it's it's un it's unfortunate, but uh it is it is complicated, it is technical, and uh a person would be served well to ask for real advice on what they should do.
Karen Covy 21:15
So it sounds like the credit reporting agency accumulates or gathers all of this different um information, and at some point somebody has to come up with a credit score, but when you apply for your annual report, you don't get your credit score. So how does all this reporting create or affect a credit score? And how can you get, how can you know what your own credit score is?
Jim Smith 21:42
Yeah, sure. So that's a good question. And there's and make it even more confusing, there's more than one type of credit score. There's like a FICO score, which would be the most common score that you hear about when you're applying for a mortgage. So a mortgage company will pay um a company to pull somebody's credit. It and it'll include a FICO score. So they'll the the mortgage company will pay, I don't even know what they pay right now, but let's say it's $70 or something like that, to get all three credit reports on behalf of a consumer, and that'll include their FICO score. There's also a score called the Vantage Score, which is they use the same data, but we don't know what the algorithms are, so they're not always the same. Um oftentimes FICO is lower than vantage score, at least that's been my experience, but that's not always the case. Um and we'll get a vantage score. We use a company a lot of times called identity IQ, um, where we'll pay something like $20 a month or $20 per pull, and it'll get a vantage score. So there'll be a some score indicating, and it'll say good, great, excellent, poor. It'll give you an understanding of you know where you're standing with respect to your score. So there's we have to pay for that. So that stuff is not free.
Karen Covy 23:02
Okay. And when people do this, I know that like you said, there are hard inquiries about your credit, right? Does do the number of hard inquiries affect your credit score? And if you're if you're pulling your own report like every quarter from the different companies, are you negatively impacting your own credit score?
Jim Smith 23:25
Sure. So that's those are really two questions in there. So the first one is if there is a legitimate hard inquiry, that that does, we understand does impact your score, and then it'll bring your score down a little bit. The number that I've heard is it'll bring it down about two points. Um so if you're really if you've got good credit and you need to, you know, you want to get a loan, and you have a creditor pull your credit, your score will stay the same, go down about two points. So that's one that's one instance. If you're having um a mortgage company access your credit in certain ways, it's called a soft inquiry. And a soft inquiry does not impact your credit score. So if somebody calls us and says, I've got these problems, and they've we've done an investigation and we think that there's a a reason to review their credit report with them, we'll do an identity IQ poll, and that's a soft inquiry. So that doesn't have any impact on their credit score at all.
Karen Covy 24:26
Awesome. Um, and how can people find their credit score? How do they know what it is?
Jim Smith 24:32
Well, like you can go to FICO.com and pay for a score. You can go to um identity IQ is where we go to, but there's dozens of other companies out there where you can they'll give you either your FICO score or your vantage score or some sort of credit score.
Karen Covy 24:49
Okay, so let's say that someone has figured out they have a problem, they pull their credit report, they see the problem, they make a police report, they send the letter off to the credit reporting agencies. 30 days come, you know, after 30 days later, either the credit reporting agencies do nothing, or they're not able to fix the problem that like there's something big going on. What then can a consumer do to actually get the problem solved?
Jim Smith 25:18
Yeah, so at that point, you could send another round of dispute letters and see if it gets their attention this time. Uh our experience has been once they mark sort of mark it down as accurate, you can't convince them otherwise. Um if they if they find us or another attorney that does this type of work, uh we evaluate the claim, then we evaluate whether the error is causing any harm. And so that's an element that we need to have in order to pursue a case on behalf of a consumer. There has to be some sort of damage going on. Um what do you mean by damage?
Karen Covy 25:53
What what's what harm are you looking for?
Jim Smith 25:55
So, like a denial letter. You know, let's say somebody wants to apply for a home mortgage or a refinance and they get denied because there's something on their credit report that shouldn't be there. You know, so uh you know, credit denial is one. Uh emotional distress is a type of damage that the Fair Credit Reporting Act acknowledges. Um that's and you don't need medical testimony for that?
Karen Covy 26:20
Okay. So let me say, let me ask this. Let's say that you you're applying for a mortgage, and the credit report that the mortgage company gets isn't accurate, but they don't deny your loan, they just jack up the interest rate. So you can't get the good interest rate, you've got to get something higher. Is that damage? And how do you prove that?
Jim Smith 26:43
Uh yeah, that would be considered I would say that's damage. Um, and the way we it has to be post, in order to prove it in litigation, it has to be post-investigation damage. So you've given them an opportunity to fix the problem. Okay, they fail to fix it, and then the person uh is like, well, they didn't fix it, I'm gonna apply for the loan anyway. And they're paying a higher interest rate. If we show that timeline of events that they noticed the problem, try to get rid of it, they didn't do a good investigation, they left the error there, they felt strapped for time or whatever the case may be, so they went forward anyway and got a loan, and now they're paying more in interest or whatever, whatever damage would be there, then that's how you show a court is that you're paying more for this loan product than you should be only because of this error.
Karen Covy 27:37
Okay, so it doesn't have to be a straight-up denial of we're not giving you a mortgage. The increased interest rate is enough to be damaging to you, correct?
Jim Smith 27:46
Correct. Yep, absolutely.
Karen Covy 27:48
Okay. So now that we've sort of gotten the lay of the land in how credit works, how does all of this relate to divorce?
Jim Smith 27:59
Sure. So that's the sort of the secret sauce here and why I I talk with a lot of family law attorneys. So we learned through the course of filing a lot of cases on behalf of clients that there was a high percentage of our clients that were post-divorce. Um so I you know dug a little deeper to figure out you know what you know why and what's going on there. And what we learn is so people learn about these problems, like you had asked earlier, when they need credit. And so a lot of people post-divorce will need to refinance or need a new mortgage, or they're buying a car for the first time. They there's they're in a situation in which they are applying for credit for maybe the first time for some spouses, or maybe for the first time in a long time, uh, because they've had their house for a long period of time, whatever the case may be. Uh, post-divorce, applying for credit is relatively common theme. And so I had a number of clients that I was like, man, if they would have known this problem was there when the divorce started, they likely could have had this problem resolved by the time the divorce was over, or all of the relevant parties would be aware that this problem was there and it wasn't the person's fault, including the judge, and they would have taken that into consideration in the final divorce decree. Um, and so it really is a peace of mind service where if people just knew about it and had the time to fix a problem that they didn't expect to be there, they'd be way better off. They could focus on the other things that they care about through the divorce rather than dealing with all of this negative blowback, you know, six months after the divorce is over.
Karen Covy 29:47
Yeah, that that's interesting because some, by no means all, divorce lawyers will tell their clients in the beginning of a divorce, yeah, pull your credit report and see what it says. Um but a lot of times people don't know what they're looking for. They don't know where to go, they don't know what to do. Um and I can see how this would affect, you know, I can see how it would affect, for instance, a lot of people, one person gets the house, the other one's got, and then they've got to refinance and take the other one's name off of it. And if you don't know you can re- you can't refinance because your credit's bad, it's a problem.
Jim Smith 30:25
Yes, correct. And there's I've talked with enough people now where there's dozens of scenarios just like that about problems that people didn't really know existed.
Karen Covy 30:37
So give can you give me some examples? What other problems might exist that people going through a divorce, if they just knew it while they were in the process, they could have fixed it?
Joint And Authorized User Traps
Jim Smith 30:49
Sure. So uh the two the two big ones are joint credit cards and authorized user credit cards. So if there is a married couple and they're joint account holders, and maybe they're aware of it, uh sometimes, oftentimes they're not, but at least both spouses may not be aware of it. But even if they're both aware of it, and they agree that post-divorce the ex-husband is gonna be responsible for that credit card. Uh, and there's a divorce decree that's entered that says that. And then post-divorce, ex-husband misses a bunch of payments, and now there's lates on the credit report, and this score goes down. The score will go down on the ex-wife's credit, too, even though there's a divorce decree that states it's not her obligation anymore. So in the process of them everybody deciding that's what they were going to do, nobody told the credit card company. So nobody gave the credit card company an opportunity to have the ex-husband at least close that account out and have the ex-husband open up a new card or whatever the case may be. Um, they just didn't think about it because they've got these other fights that they need to consider and um these other you know emotional items that are just happening, you know, they're not focused on these types of details. So that's a very common one that I see. And um another one that's easier to fix, even that is a problem, is authorized user accounts. So if the you know the wife is an authorized user on the husband's credit card and they go through the divorce, you know, maybe they're aware of it, maybe they're not. The wife, I mean, ultimately the divorce decree says this card husband's in charge of going forward, everybody's okay with it. They sign the sign the divorce decree, gets entered, everybody goes on their way. Husband now uh post-divorce runs into some financial problems, misses payments. That still impacts this the wife, the ex-wife's credit score. And all that in order to get that removed, she can't remove herself because she's not the account holder. The husband ex-husband is. So now she's got to call the ex-husband and say, Can you please remove me as an authorized user from your card? Uh, which, you know, depending on the situation, may be something that she really doesn't want to do. And that's a real easy fix. If during the divorce they understood that that was the case, the ex-husband or soon-to-be ex-husband could have made that call before the divorce was over and just removed her name. And that could have been referenced in the divorce decree, you know.
Karen Covy 33:31
How can let let's say that does happen in the course of the divorce, and the we're gonna I'll go with what you uh laid out here. The soon-to-be ex-husband says, Yeah, I called American Express and I removed you as an authorized user. But he didn't. How can she find out if you really did what he was supposed to do?
Jim Smith 33:52
It should accurately show up in your credit report. So how long after? It it'll be there for as long as she's an authorized user, it'll keep reporting every month that she's an authorized user. So if let's say six months after the divorce, he was supposed to remove her but never did, it'll show up on her credit report that she's an authorized user.
Karen Covy 34:13
Okay, so it's it sounds to me, just thinking like a divorce litigator, that if I think that the other side, the in this case, the soon-to-be ex-husband, is playing fast and loose and maybe a little shady and not doing what he's supposed to do. If I'm the wife or representing the wife, it sounds like the appropriate course of action would be to say to him, remove me as an authorized user, maybe get a court order saying husband shall remove her as a as an authorized user, wait 30 or 60 days, pull my credit report again. And if I'm still an authorized user, I have proof he didn't do what he was supposed to do.
Jim Smith 34:51
Sure, yeah, absolutely. Or if through the divorce proceeding, they could at least have him make an admission that he did it. You know, that could be helpful. Um, you know, just to put the pressure on him to actually do what he said he's gonna do. Uh, certainly. But yeah, so the same thing with um some people have used my services to do a deep dive on their credit uh for balances. So if they have a joint credit card they're aware of, and you pull your credit, you know, you file the divorce in February and you pull it in February, and you have a joint credit card with a it's it reports a balance of $2,000. And then you pull it again when the divorce is over, and now it says $12,000, but this the wife, for example, never used it at all. So but it's gonna be her card going forward or some such thing. So it's a it's a just a way to sort of monitor um you know, you know, balance impacts on credit that both spouses are responsible for.
Karen Covy 35:54
So listening to all of this, it would seem to me that this isn't a one and done. Like if you're if you're facing a divorce, you would be wise to pull your credit in the beginning, to pull it and to pull it again before the divorce is final, and then shortly after it's final. Is that what I'm hearing?
Jim Smith 36:14
Yes, I that's what I recommend. So I recommend they pull it in the beginning, and I so I do this at a free service. So I'll I pay the $20 and I do a deep dive with the client on the phone, and it's I we go through it in detail, and then at the end of that, I do a little action item report for what they should recommend to their family law attorneys as you know, red flags or things that they should maybe accomplish while the divorce is open. And so I give that to the client and I can share it with the family law attorney too if they if they want. Um, and then I would recommend before the divorce is over, but very at very near the end, is to pull another credit report to make sure that if there's things that should have been happening, that they actually took place. Um and then if they took place, then you now you've got some peace of mind and it's clean. And then I would recommend, just like I recommend for everybody else, is that you just you pull it you know once a year going forward.
Karen Covy 37:11
Awesome. I mean, this sounds like it's it would be such a helpful service, but let's say somebody does all this and they find out that they've got bad credit, you know, whatever, however you define bad. Um does your firm help people rebuild their credit, or do you have a like do you partner with other people you can say here, go to this company or that company?
Jim Smith 37:31
Yes, we would we partner with other people. So we do not help people build their credit, um, but we know good, honest, trustworthy people that we would recommend. Um and then there's different people that have different personalities, so not everybody's a great fit, but um we would we would find the right person for them to rebuild their credit if they need that. Uh also if there's errors, so one of the clients that we found through divorce was a mixed file. So he had uh debt on his credit report that he had no idea was his, and it turns out it wasn't his because uh Equifax or Experian mixed somebody else's information with his credit report. Um, and so we started that dispute process with him uh right then and there uh to help get that resolved as quickly as possible.
Karen Covy 38:19
Wow. This talk about an education in this podcast. I mean, you this has been amazing.
Jim Smith 38:26
Good. I'm glad. It's um it's you know, the other thing too that I like to point across or point out to people is that um there's an assumption that everybody's credit report is good as far as accurate. That these billion-dollar entities are in charge of monitoring this information, they're doing a good job. I can tell you that, you know, two out of every 10 credit reports I look at has material false information in it. Um studies have been done where it's up to 25% of material on credit reports are wrong. So it's a high enough percentage where I have more work than I can handle. Um and there's other people that do the same type of work that I do, and they're all busy as well. So it's it is a real thing. It happens. Um, it’s something to consider. Like it, you should just do a check to ensure you're not one of the two, that you're one of the eight.
Karen Covy 39:23
I love that. I love that. Jim, thank you so much for being on this episode, for sharing all of your knowledge with us. I really appreciate it.
Jim Smith 39:32
Thank you, Karen. I really enjoyed my time.
Karen Covy 39:34
Awesome. And for those of you out there who are watching or listening, if you enjoyed this episode, if you'd like to hear more episodes just like it, do me a big favor give the episode a thumbs up, like, subscribe to the podcast, subscribe to the YouTube channel, and I look forward to talking with you all again next time.
