The Tragic Life Event That Can Unexpectedly Make Your Credit Score Fall

Losing a spouse means the loss of companionship, emotional support, and in some cases, financial security. It can be devastating across every aspect of life, but you may be surprised to learn that the credit scores of surviving spouses can also be affected, further complicating an already difficult situation. The Center for Financial Security at the University of Wisconsin – Madison took a look at the issue in a recently released study and found a correlation between the death of a spouse and a drop in credit score for the surviving spouse.

While the study focused on those who lost partners during the Covid-19 pandemic, findings show that this drop is often a result of factors like the deceased spouse being the primary account holder for credit cards and loans, spouses not sharing in the management of family's finances, and the surviving spouse not having any independently established credit.

According to Experian, one of the three leading credit reporting agencies, the average credit score in 2023 was 715. This number falls within a range that spans from an average score of 680 for Gen Z borrowers aged 18-25 and an average score of 760 for the "Silent Generation," individuals who are 78 and older. The UW Madison study found surviving spouses experienced an average of a 10-point credit score drop following the death of their partner, with some individuals experience higher and lower drops.

A drop in your credit score can have a negative impact on your life in numerous ways. A good credit score can not only affect your ability to get new credit and impact the interest rates you are charged on loans and lines of credit but can even affect the outcome of buying a new home or getting a job. One of the most important ways to avoid a downward financial spiral should your spouse pass away is by establishing good practices ahead of time.

Begin by working together with your partner to manage your family finances. When both partners are aware of what bills are to be paid monthly and what accounts are open, it is less likely that the surviving spouse will miss payments and default on loans. At a time when someone is grieving the loss of a spouse, the last thing they want to deal with is trying to decipher confusing family finances.

It's also important for both spouses to have credit cards in which they are the principal cardholder. If the surviving spouse has a card with their name on it but isn't the principal cardholder on the account, they will quickly find themselves unable to continue using that card. Having a credit card in good standing is an important tool in building and maintaining good credit. Not only will this ensure the surviving spouse continues to have spending power, but it will also ensure they are actively building a credit history.

There are certain actions like filing for bankruptcy and applying for too many loans that can hurt your credit, but the loss of a spouse is out of your control. Unlike bankruptcy, however, which Experian reports can drop your credit by up to 200 points, you can recover much quicker from a 10-to-20-point drop in score than you can from a Chapter 7 bankruptcy, which will stay on your credit for 10 years.

Should your score drop after the loss of a spouse, it is important to know that recovery is certainly possible with a little work. Whether your spouse was the primary wage earner, the primary card holder for shared credit cards, or simply the one who handled the family financials, the key is to not avoid the issue. To begin with, don't let yourself miss credit card and loan payments, and be sure to keep utilities paid. If you need to establish credit, it's time to open a credit card, but avoid opening new ones or requesting credit limit increases if you already have them as this can adversely affect your score.