What Is a Judgment and How Does It Affect Your Credit?

A judgment is a legal decision made by a court after a lawsuit is filed, usually in cases where one party sues another for an unpaid debt. It’s the court’s official statement that you owe the money and are legally required to pay. Judgments typically occur when a creditor, such as a credit card company, lender, or service provider, sues you for failing to meet your financial obligations.

But how does a judgment impact your credit and what should you know about its long-term effects?

What Is a Judgment?

A judgment is a ruling issued by a court that states you owe a certain amount of money to a creditor, and the creditor has legal rights to collect that debt. When a creditor wins a lawsuit against you in court, they can receive a judgment that may lead to wage garnishment, bank account levies, or liens on your property.

Before a judgment is issued, the creditor must prove that you owe the debt and that you haven’t made payment according to the terms of the contract. The judgment may include the original debt amount plus any additional fees, such as interest, court costs, and attorney fees.

How Does a Judgment Impact Your Credit?

Once a judgment is entered against you, it will show up on your credit report and can significantly affect your credit score. This is because judgments are considered a sign of serious financial trouble and are viewed negatively by credit bureaus.

Here’s what you can expect:

1. Credit Score Drop: A judgment can cause a substantial decrease in your credit score, especially if your score was already in a lower range. This can make it more difficult to qualify for loans, credit cards, or mortgages in the future.
2. Public Record: Judgments are typically part of public record, meaning they can be seen by potential lenders or anyone doing a background check. This can impact your ability to secure housing or even employment in some cases.
3. Difficulty Getting New Credit: With a judgment on your credit report, you may find it hard to get approved for new credit. Lenders may see you as a high-risk borrower, leading to higher interest rates or outright denials.
4. Effect on Credit Report Duration: A judgment can stay on your credit report for up to seven years. Even if you eventually pay off the debt or settle with the creditor, the judgment will remain on your report for that period unless it’s vacated or removed by the court.

Will Paying Off a Judgment Remove It From Your Credit Report?

Paying off a judgment may improve your credit score, but it won’t immediately remove the judgment from your credit report. The judgment will still appear, but your credit report will show that it has been “satisfied” or “paid.” While this can help you demonstrate that you’re working to resolve your financial issues, the judgment itself will remain for the full seven years unless you take additional steps to have it removed.

Can a Judgment Be Removed From Your Credit Report?

Yes, but it’s not easy. If you believe a judgment is incorrect or that it was entered in error, you can file a motion with the court to have it vacated or dismissed. If the court agrees with your case, the judgment can be removed from your credit report. However, this process can be time-consuming and complex.

In some cases, judgments may be eligible for removal if they are old or if the creditor does not take legal action within a certain period. You may also be able to negotiate with the creditor to settle the debt for less than the full amount in exchange for the judgment being removed from your record.

How Can You Protect Your Credit From Judgments?

• Pay Your Debts on Time: The best way to avoid a judgment is to stay current on your debt payments. If you’re struggling to make payments, reach out to your creditors and try to negotiate new terms.
• Stay Informed: Always monitor your credit report for any errors or discrepancies. If you spot a judgment that shouldn’t be there, take action quickly to dispute it.
• Negotiate with Creditors: If you receive a court summons for a debt you owe, don’t ignore it. Try to settle with the creditor before it reaches the judgment stage. Many creditors are willing to negotiate and come to a settlement agreement.
• Work With a Credit Repair Professional: If you’re facing judgments or other negative items on your credit report, a credit repair specialist can help you understand your options and take steps to improve your financial standing.

Conclusion

A judgment can have a serious impact on your credit, making it harder to obtain credit, secure loans, or even rent a home. However, with the right steps, such as negotiating settlements and addressing disputes, you can eventually improve your credit score. If you’re facing a judgment, it’s essential to take action as soon as possible to minimize its negative effects and protect your financial future.