If a debt collector files a lawsuit against you for the amount owed and you ignore the lawsuit or fail to give a timely response, they may be awarded a judgment by the judge, notes the Consumer Financial Protection Bureau (CFPB).
When this happens, your credit could sustain major damage. Even worse, you could sustain severe financial damage should the debt collector be given the right to garnish the funds in your bank account or your wages (through a wage attachment). And in some cases, they could even go as far as putting a lien on your home, the CFPB adds.
You can avoid judgments by working with the debt collector prior to or at the first sign of a lawsuit. But if it’s too late and the judgment has already made it to your credit report. There are ways to have it removed.
Read on to learn more about the different types of judgments and the impact they have on your credit report and score. You’ll also learn how to have them removed from your credit report. And we’ll wrap up with a discussion on ways to rebuild your credit score after the fact.
How are judgments classified?
There are four types of judgments you should be aware of.
This label is given to judgments that have been paid in full or settled. While a satisfied judgment doesn’t necessarily mean your credit score won’t suffer, it still looks much more favorable in the eyes of potential lenders and creditors than an unsatisfied judgment. However, it still remains on your credit report for seven years from the date of filing.
Unsatisfied (or unpaid) judgment
If a judgment that has not been paid in full or settled, it is classified as an unsatisfied (or unpaid) judgment. Not only do unsatisfied judgments spell trouble for your credit score, but they could also have harsh consequences for your finances. Why so? The creditor that you owe may employ tactics to recover what they’re owed. And although it remains on your credit report for seven years from the date of filing, you may notice that it stays longer if it is ref-filed by the court.
These are judgments that have been renewed through the courts because it was not paid in full or settled. To prevent judgments from being re-filed on your credit report, it’s best to work with the creditor who sued you to reach a settlement agreement. And if you have the funds available, you also have the option to pay in full so it can be converted to a satisfied judgment and not continue to haunt you.
An important note: be sure to confirm that you’re remitting payment to the correct creditor if the account has been tossed around to different collection agencies. Otherwise, your payment will be in vain.
Vacated judgments are classified as such if they are dismissed or thrown out by the courts due to a successful appeal. They should automatically be removed from your credit report. But if this is not the case, you should file a dispute with each of the credit bureaus to have it removed. Just be sure to provide adequate documentation to prove that the judgment is, in fact, vacated by the courts.
How do judgments impact your credit score?
Judgments will plummet your credit score, but the impact will lessen over time. (The exception to this rule applies if the judgment is re-filed by the courts). But beyond your credit score tanking, there are several other negative consequences that can result from a judgment being filed, including:
- Less favorable approval odds for credit and loan products
- Exorbitant interest rates on credit and loan products
- Higher deposit requirements for rentals and services
Why so? Well, lenders will perceive you as a risky borrower with an elevated chance of default. In turn, they may require that you spend more in interest in fees to access their products. Or they could deny your application altogether.
How long will a judgment remain on your credit report?
Unlike most negative accounts, like collections, charge-offs, and repossessions, judgments are not reported to the credit bureaus by the court. Instead, the credit bureaus acquire this information for reporting through public records.
Once it’s included on your credit report, the judgment will remain for seven years from the initial date of filing. And should you decide not to start repayment or ignore the judgment altogether, it can be re-filed by the court and remain on your credit report for an additional seven years (or indefinitely if you refuse to address it and it continues to get renewed by the courts).
But what if you satisfy the judgment or pay it in full? Unfortunately, it will still remain on your credit report for seven years from the initial filing date.
However, judgments that are vacated by the courts are deleted by credit bureaus. As a result, they will be removed from your credit report, but you may have to provide adequate documentation with your dispute to ensure the deletion is done in a timely manner.
Is it possible to remove a judgment from your credit report?
Contact the court
It won’t be enough to file a dispute with the credit bureaus asking that they validate the debt or remove it if they’re unable to do so. Why so? It’s not their responsibility to reach out to the court to affirm or deny the judgment.
That falls on you, and if the court fails to respond, you can then plead your case to the credit bureaus to have it removed. But you’ll need to provide proof of your attempts to contact the court with your dispute to have the best chance of the credit bureaus ruling in your favor and removing the negative entry.
An important note: be sure to dispute the judgment with all three credit bureaus. Having the entry removed from one credit report doesn’t mean that other two bureaus will follow suit as they do not communicate.
Did you find inaccuracies in the credit report listing? If so, you can file a formal dispute with the credit bureaus to address the issue. Per the Fair Credit Reporting Act, they are required to update the entry with the correct information.
But keep in mind that the credit bureaus will expect you to reach out to the courts and obtain documentation to support your claims. There’s always a chance that they won’t bother to address the issues and simply delete the judgment.
File an appeal (to have the judgment vacated)
It’s worth a shot to file a motion to appeal your case (or vacate a judgment) with the court in hopes of having it dismissed.
The judge may agree to vacate the judgment if both parties can agree on a settlement amount. You may also be in luck if you were unable to attend the original hearing for a valid reason, did not receive a summons to attend court, or the debt collector broke the law.
If the judge rules in your favor, the judgment will be vacated and removed from your credit report (though you may have to provide the credit bureaus with documentation to expedite the process). Even better, you’ll be off the hook for the debt balance and accompanying legal fees.
Seek professional help
Dealing with judgments on your credit report can be overwhelming. However, there are several reputable credit repair companies that can lend a helping hand to have them removed from your credit report. And if the judgment has been vacated by the reports, it shouldn’t take long for the credit repair company to get the desired result from the credit bureaus.
Quick note: it may be worthwhile to have the judgment removed if you’re trying to get approved for a particular debt product, like a mortgage. But it doesn’t erase your obligation to repay the debt. And the court may proceed to re-file the judgment if the amount owed remains over an extended period of time.
Tips to help rebuild your credit after a judgment
It’s no secret that a judgment on your credit report limits your credit card and loan options. The good news is you don’t have to wait the entire seven years until it falls off your credit report to start rebuilding your credit rating. Here are some actions you can take right away to give your score a boost:
Get current on all your debt obligations.
Are there any past due accounts lingering on your credit report? Make a plan to get current right away or work with the creditor to break up the payments. Not only does payment history account for 35 percent of your credit score, but the last thing you need when trying to rebuild your credit score is another account going into collections.
Continue to make timely payments.
The more positive payment history reported to the credit bureaus, the better. So, you want to maintain this practice while getting back on track. And in the event you encounter financial difficulty, contact creditors right away to come up with a plan of action. It’s much better to be proactive than reactive when dealing with creditors, and you’ll give yourself the best possible chance of having them work with you to find a resolution until you get your finances in order.
Reduce your debt load.
Refrain from applying for and opening new credit accounts.
Each time you apply for new credit, a hard inquiry is generated and your score drops by two to five points, and credit inquiries remain on your credit report for two years. This may not seem like a huge drop, but could quickly add up if you apply for several credit cards at once. The exceptions to the rule are secured credit cards and credit builder loans, which are geared towards consumers with less than perfect credit. More on the that shortly.
Open a secured credit card
Secured credit cards are another option you can use to rebuild your credit after a judgment. When you apply, prepare to fork over a deposit equal to the credit line to open the account. The creditor will then holds the funds in a savings accounts until you close the account or it is converted to an unsecured credit card.
Apply for a credit builder loan through Self Lender
Prefer not to make a hefty deposit to open a secured credit card? Apply for a credit builder loan from Self Lender to keep more of your hard-earned cash in your pocket. Unlike traditional credit builder loans, they only require that you pay a small administrative fee to open the account. Then, you will remit a small payment each month until the loan is paid in full. Each payment will be reported to the credit bureaus to reflect positive payment history.
The bottom line
You can play an instrumental role in the removal of your judgment if you’re persistent and take the right actions. Even better, your credit score will bounce back. And you will have a peace of mind now that a tarnished credit rating isn’t hanging over your head.