How Do Judgments Impact Credit Scores?

With the way things are in our economy lately, there seems to be a recurring theme in credit reports…judgments!  The question that always comes up is, “What has this judgment done to my credit?”

What is a judgment?  The definition of judgment is:  a formal decision given by a court.”  Once the court renders a judgment the chances of you getting out of this without paying it off decreases significantly.  If, for example, a creditor has gone to the extent of suing you and getting a judgment, they may not be willing to make payment arrangements with you when they are almost guaranteed money if they can garnish your wages; which is exactly what a judgment is setting them up to do.

By the time you get yourself to judgment status a lot of things have had to have happened first.  Let’s look at what’s happened.  You have been late on payments at least 3 or 4 months in a row i.e…30 days late, 60 days late, 90 days late and then 120 days late, and those late payments have done the following with your credit report:

1.    30 days late – This record will damage your credit scores most when it is reported as “currently 30 days late.”  The exception is if you are 30 days late often. Otherwise, a 30-day late payment will not cause terminal damage to your credit scores.

2.    60 days late – This record will also damage your credit scores most when it is reported as “currently 60 days late.” Again, the exception is if you are 60 days late often.

3.    90 days late – This record will damage your credit scores significantly and for up to 7 years. It doesn’t make a difference whether or not your account is currently 90 days late. Remember, the goal of the scoring model is to predict whether or not you will pay 90 days late or later on any credit obligation. By showing that you have already done so means that you are more likely to do it again, compared to someone who has never been 90 days late. As such, your credit scores will drop.

4.    120+ days late – Late payment reporting beyond the initial 90 day missed payment may not cause additional credit score damage directly.  However, there is an indirect impact to your scores.  At this point, your debt is usually “charged off” or sold to a 3rd party collection agency.  Both of these occurrences are reported on your credit files and will lower your credit scores further.

So, once you get to 120+ days late you have put some pretty major derogatory marks on your credit reports that are going to take some time and effort on your part to overcome.  Usually when your creditor sells this bad debt to a 3^rd party collection agency who will attempt to collect this debt from you, they will want this to take place as quickly as possible.  Once the collection agency comes to the conclusion that they are not going to be able to collect the debt from you in a timely manner, they will send the information to their attorney and start the proceedings to have you served with lawsuit paperwork and a judgment well on its way to being placed on your credit report.

The best advice is to make sure you pay your bills on time to keep things from going to collections and then possibly to judgment.  Even though we have been taught that a 90 day late is considered to be the worst thing you can do to your credit report, a judgment can have a severe impact on your credit report too.  And finally, once you pay the judgment it will still stay on your credit report for 7 years from the date of the initial judgment.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.

Categorised in: Civil Penalty, Credit Cards, Credit Report, Credit Score, Money & Identity

This post was written by John Ulzheimer