Going Through A Divorce? Protect your Credit

Tim Lyon • July 11, 2024

Divorces are challenging as there’s a lot to think about in a short amount of time, usually under pressure. And while handling finances is often at the forefront of the discussions related to the separation of assets, unfortunately, managing and maintaining personal credit can be swept aside to deal with later.

So, if you happen to be going through or preparing for a divorce or separation, here are a few considerations that will help keep your credit and finances on track. The goal is to avoid significant setbacks as you look to rebuild your life.

Manage Your Joint Debt

If you have joint debt, you are both 100% responsible for that debt, which means that even if your ex-spouse has the legal responsibility to pay the debt, if your name is on the debt, you can be held responsible for the payments. Any financial obligation with your name on the account that falls into arrears will negatively impact your credit score, regardless of who is legally responsible for making the payments. A divorce settlement doesn’t mean anything to the lender.

The last thing you want is for your ex-spouse’s poor financial management to negatively impact your credit score for the next six to seven years. Go through all your joint credit accounts, and if possible, cancel them and have the remaining balance transferred into a loan or credit card in the name of whoever will be responsible for the remaining debt.

If possible, you should eliminate all joint debts. Now, it’s a good idea to check your credit report about three to six months after making the changes to ensure everything all joint debts have been closed and everything is reporting as it should be. It’s not uncommon for there to be errors on credit reports.

Manage Your Bank Accounts

Just as you should separate all your joint credit accounts, it’s a good idea to open a checking account in your name and start making all deposits there as soon as possible. You’ll want to set up the automatic withdrawals for the expenses and utilities you’ll be responsible for going forward in your own account.

At the same time, you’ll want to close any joint bank accounts you have with your ex-spouse and gain exclusive access to any assets you have. It’s unfortunate, but even in the most amicable situations, money (or lack thereof) can cause people to make bad decisions; you want to protect yourself by protecting your assets.

While opening new accounts, chances are your ex-spouse knows your passwords to online banking and might even know the pin to your bank card. Take this time to change all your passwords to something completely new, don’t just default to what you’ve used in the past. Better safe than sorry.

Setup New Credit in Your Name

There might be a chance that you’ve never had credit in your name alone or that you were a secondary signer on your ex-spouse’s credit card. If this is the case, it would be prudent to set up a small credit card in your name. Don’t worry about the limit; the goal is to get something in your name alone. Down the road, you can change things and work towards establishing a solid credit profile.

If you have any questions about managing your credit through a divorce, please don’t hesitate to connect anytime. It would be a pleasure to work with you.

< Older Post Newer Post >

Tim Lyon

Mortgage Consultant

How To Avoid An Accidental Home Purchase

By Tim Lyon • February 20, 2025

Buying a property might actually be easier than you think. So, if you have NO desire AT ALL to qualify for a mortgage, here are some great steps you can take to ensure you don’t accidentally buy a property. Fair warning, this article might get a little cheeky. Quit your job. First things first, ditch that job. One of the best ways to make sure you won’t qualify for a mortgage is to be unemployed. Yep, most mortgage lenders aren’t in the practice of lending money to unemployed people! If you already have a preapproval in place and don’t want to go through with financing, no problems. Unexpectedly quit your job mid-application. Because, even if you’re making a lateral move or taking a better job, any change in employment status can negatively impact your approval. Spend All Your Savings. To get a mortgage, you’ll have to bring some money to the table. In Canada, the minimum downpayment required is 5% of the purchase price. Now, if the goal is not to get a mortgage, spending all your money and having absolutely nothing in your account is a surefire way to ensure you won’t qualify for a mortgage. So, if you’ve been looking for a reason to go out and buy a new vehicle, consider this your permission. Collect as Much Debt as Possible. After quitting your job and spending all your savings, you should definitely go out and incur as much debt as possible! The higher the payments, the better. You see, one of the main qualifiers on a mortgage is called your debt-service ratio. This takes into count the amount of money you make compared to the amount of money you owe. So the more debt you have, the less money you’ll have leftover to finance a home. Stop Making Your Debt Payments So let’s say you can’t shake your job, you still have a good amount of money in the bank, and you’ve run out of ways to spend money you don’t have. Don’t panic; you can still absolutely wreck your chances of qualifying for a mortgage! Just don’t pay any of your bills on time or stop making your payments altogether. Why would any lender want to lend you money when you have a track record of not paying back any of the money you’ve already borrowed? Provide Ugly Supporting Documentation. Now, if all else fails, the last chance you have to scuttle your chances of getting a mortgage is to provide the lender with really ugly documents. To support your mortgage application, lenders must complete their due diligence. Here are three ways to make sure the lender won’t be able to verify anything. Firstly, and probably the most straightforward, make sure your name doesn’t appear anywhere on any of your statements. This way, the lender can’t be sure the documents are actually yours or not. Secondly, when providing bank statements to prove downpayment funds, make sure there are multiple cash deposits over $1000 without explaining where the money came from. This will look like money laundering and will throw up all kinds of red flags. And lastly, consider blacking out all your “personal information.” Just use a black Sharpie and make your paperwork look like classified FBI documents. Follow-Through So there you have it, to avoid an accidental home purchase, you should quit your job, spend all your money, borrow as much money as possible, stop making your payments, and make sure the lender can’t prove anything! This will ensure no one will lend you money to buy a property! Now, on the off chance that you’d actually like to qualify for a mortgage, you’ve come to the right place. The suggestion would be to actually keep your job, save for a downpayment, limit the amount of debt you carry, make your payments on time, and provide clear documentation to support your mortgage application! If you'd like to make sure you're on the right track, connect anytime. It would be a pleasure to walk through the mortgage process with you.

Standard or Collateral Charge Mortgage. What’s best for you?

By Tim Lyon • February 13, 2025

When arranging mortgage financing, your mortgage lender will register your mortgage in one of two ways. Either with a standard charge mortgage or a collateral charge mortgage. Let’s look at the differences between the two. Standard charge mortgage This is your good old-fashioned mortgage. A standard charge mortgage is the mortgage you most likely think about when you consider mortgage financing. Here, the amount you borrow from the lender is the amount that is registered against the title to protect the lender if you default on your mortgage. When your mortgage term is up, you can either renew your existing mortgage or, if it makes more financial sense, you can switch your mortgage to another lender. As long as you aren’t changing any of the fine print, the new lender will usually cover the cost of the switch. A standard charge mortgage has set terms and is non-advanceable. This means that if you need to borrow more money, you'll need to reapply and requalify for a new mortgage. So there will be costs associated with breaking your existing mortgage and costs to register a new one. Collateral charge mortgage A collateral charge mortgage is a mortgage that can have multiple parts, usually with a re-advanceable component. It can include many different financing options like a personal loan or line of credit. Your mortgage is registered against the title in a way that should you need to borrow more money down the line; you can do so fairly easily. A home equity line of credit is a good example of a collateral charge mortgage. Unlike a standard charge mortgage, here, your lender will register a higher amount than what you actually borrow. This could be for the property's full value, or some lenders will go up to 125% of your property's value. In the future, if the value of your property appreciates, with a collateral charge mortgage, you don't have to rewrite your existing mortgage to borrow more money (assuming you qualify). This will save you from any costs associated with breaking your existing mortgage and registering a new one. However, if you’re looking to switch your mortgage to another lender at the end of your term, you might be forced to discharge your mortgage and incur legal fees. Also, by registering your mortgage with a collateral charge, you potentially limit your ability to secure a second mortgage. So what’s a better option for you? Well, there are benefits and drawbacks to both. Finding the best option for you really depends on your financial situation and what you believe gives you the most flexibility. This is probably a question better handled in a conversation rather than in an article. With that said, undoubtedly, the best option is to work with an independent mortgage professional. It’s our job to understand the intricacies of mortgage financing, listen to and assess your needs, and recommend the best mortgage to meet your needs. As we work with many lenders, we can provide you with options. Don’t get stuck dealing with a single institution that may only offer you a collateral charge mortgage when what you need is a standard charge mortgage. So if you’d like to have a conversation about mortgage financing, please get in touch. It would be a pleasure to work with you and answer any questions you might have.