Like so many things within the world of credit reporting and credit scoring, the subject of judgments and their impact on your credit is often very misunderstood. There are simply too many myths around judgments, which compounds the problem.
If you feel confused about how judgments impact credit reports and credit scores then here’s some clarity on the issue.
1. How Do Judgments End Up on Credit Reports?
If you are sued in court and the court or the jury rules against you then a judgment is filed in the adverse party’s favor. The judgment is actually filed against you by the court, not by the party who initially sued you. Once a judgment is filed against you it may not be long before it finds its way onto your credit reports.
However, the manner in which judgments end up on credit reports is quite a bit different than the way in which other accounts find their way onto your credit reports.
The majority of accounts which end up on a consumer’s credit report – i.e. mortgages, credit cards, collection accounts, etc. – are reported to the credit bureau by lenders or collection agencies, aka “data furnishers.”
Courthouses and court clerks are not data furnishers. They do not report information about judgments (or any other public record) to the credit bureaus. Instead, the credit bureaus proactively seek out information regarding judgments through the use of public record vendors like PACER and LexisNexis.
Once a credit bureau has acquired information about a newly filed judgment they will include the judgment on the consumer’s credit file.
2. Unsatisfied Judgments and Credit Reporting Longevity
The majority of judgments are allowed to remain on a consumer’s credit report for up to 7 years from the date the judgment is filed by the court. Unsatisfied or unpaid judgments are no exception to the 7-year rule.
And, when it comes to your credit scores it should come as no surprise that judgments can have a serious negative impact.
Judgments are considered to be a major derogatory credit entry by both FICO and VantageScore’s credit scoring systems. The extent to which a judgment will impact your scores will lessen somewhat with time, but it will still damage your scores until the day it is removed.
Unsatisfied judgments (aka, judgments that have not been paid and satisfied) also have the potential to come back and bite a consumer a second time as well.
The reason unpaid judgments may have an added downside for consumers is due to the fact that they have the potential to be re-filed.
If a judgment is re-filed before the initial 7 years expires then it can be picked up by the credit bureaus again and can actually remain on the consumer’s credit report for 7 years from the new filing date.
3. Satisfied Judgments and Credit Impact
When a judgment has been paid the court will update the status of the judgment and file what’s referred to as a satisfaction of judgment. One of the most common misunderstandings about the reporting of satisfied judgments is that a satisfied judgment will be removed from a consumer’s credit report prior to the 7-year credit reporting statute of limitations.
Unfortunately for consumers, this idea is untrue. Satisfied judgments continue to remain on a consumer’s credit reports for 7 years from the date the judgment was initially filed by the court.
Although most consumers find it disappointing that satisfied judgments could continue to harm their credit scores for many years, there are still two benefits to paying off a judgment.
As mentioned above, unpaid judgments not only harm a consumer’s credit scores but they carry the added risk of being re-filed. Additionally, unpaid judgments accrue interest, just like any other debt.
The interest rates vary but it’s not unheard of to have a judgment accruing double digit interest, every year.
4. Vacated Judgments and Credit Reporting
If a consumer appeals a previously filed judgment there’s a chance they can have it vacated. When a court vacates a judgment, it is as if the judgment never existed.
Thankfully for consumers, the credit bureaus will delete vacated judgments from credit reports. Vacated judgments are recorded as such in court records so it’s not hard for the credit bureaus to confirm the new status.
Or, if you’re able to get a copy of the vacate order you can provide a copy to the credit reporting agencies and speed up the process. If you are able to get a judgment vacated then you can dispute the status of the judgment with the credit bureaus and ask them to delete it from your credit reports.
If you’ve got it then be sure to include proof that the judgment was vacated with your disputes, although this is not required. Also, be sure to dispute the judgment with each credit bureau that is reporting the item.
If you are unsure which credit bureaus are currently reporting the judgment then you can always obtain free copies of all 3 of your credit reports each year at www.annualcreditreport.com.
5. Judgments and Mortgage Loans
Not only is it possible that a judgment will trash your credit scores, but an unpaid judgment will also make it much more difficult you to qualify for a mortgage loan. Judgments can lower your credit scores to the point where you may not be able to qualify for a mortgage loan.
To add insult to injury, even if your credit scores are high enough to qualify for a mortgage in spite of the presence of a judgment the lender is almost certainly going to require that the judgment be paid and satisfied prior to closing.
If you have already paid and satisfied a judgment that was filed against you do not just assume that the judgment is being reported correctly by the credit bureaus.
Credit reporting errors occur quite often (up to 21% of the time according to the FTC) and it is ultimately up to you to verify that the information on your credit reports is accurate.
You should check your credit reports and if you discover that you have a judgment or anything else being reported incorrectly you can submit a dispute to the credit bureau(s) asking for the item to be corrected or removed.