Judgments can have a long-lasting, negative impact on your credit report. The fallout from a judgment means you could have trouble getting approved for a future line of credit, an apartment, or even have trouble getting a job. The first step to preventing or minimizing the damage from a judgment is understanding what it is and how it affects your credit.
What is a judgment?
Judgments are formal decisions made by a court following a lawsuit, typically from a creditor due to non-payment of debts owed. Other companies or individuals can file them, too, such as judgments for non-payment for services or other financial obligations. Judgments are public records which means anyone can see them.
How does a judgment affect your credit score?
Credit bureaus collect public records and include them on your credit report. A judgment is one of the most damaging things to have reported on your credit report. Unlike a collection, which is handled outside of a courtroom, a judgment occurs when there is a court ordered mandate to repay a debt.
A judgment shown on your credit report can bring down your credit score. Potential creditors may hesitate to loan you money. If you do get approved for a loan, chances are the interest rate will be higher than normal to compensate for the additional risk the lender is taking.
How long does a judgment stay on your credit report?
A judgment can remain on your credit report for seven years from the date it was originally filed. Even if you pay the judgment, your credit report will show the judgment was satisfied. It can, however, still remain on your credit report the entire seven-year period.
However, a report showing a satisfied judgment is more preferable to an unsatisfied judgment, even if it remains on your credit report for some time.
What you can do to prevent a judgment
The easiest way to avoid ending up with a judgment is to pay at least the minimum payment on all your debts, on time, every month. When this isn’t possible because you’re facing a financial hardship, contact your lenders right away. They may be willing to work out payment arrangements for missed or late payments to help prevent you from becoming delinquent on your loans.
If you establish a payment arrangement, but still are in danger of missing the scheduled payment, be sure to contact the lender beforehand. By being proactive and showing concern to meet your obligations, the lender may work with you to help you get through the hard times.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.