When he recognized his mistake, he created the ultimate debt liquidation plan. In one payment he brought his credit card balances down to zero and his utilization ratio well below the 10% threshold. His credit score rose significantly.
Next, he was advised to send a note to the credit reporting agencies explaining that as a result of an automatic debit misunderstanding between his ex and a bank, a series of payments (over which he had no control) were reported as late to the credit bureaus. He went on to say that sufficient cash had been available (and remained) in the account to cover the ghost transfers.
Three months later his credit score was 776.
Helping Out to Move On
Unfortunately, his credit score was not transferable to his ex. She needed to refinance, but her credit was still lingering in the mid-650 doldrums. Her issue -- beyond the late payments -- was a $7,500 debt balance spread over a few credit cards, which she was forced to carry due to her inability to pay them off. That played a major role in pushing down her credit score.
My friend decided to pay off his ex-wife's credit card bills using the "just in case" money he had set aside against the credit line. Her credit score began to rise. Then, she also sent in a note to the reporting agencies explaining the origins of the late payments. Time will tell if it's as effective for her as it was for him.
So is there a happy ending? We don't know quite yet. But here's what we do know. He paid part of what he was obligated to pay under the divorce agreement a bit sooner than he expected but:
Well, even if you don't have the money to do it all at once, this is arguably a smart strategy. When you end a marriage and still retain joint liabilities under a mortgage, equity line or credit card, though you're apart, you can (and will) be intertwined in a financial relationship for a very long time. Helping an ex pay off debt faster may be the quickest way to sever that relationship once and for all, and enable one, if not both, of you to begin a new, healthier phase of your life.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.