What Would a Lien Do to a Credit Score?

Your credit score is a vitally important number because it influences lenders when they consider credit card and loan requests from you. FICO is the most widely used credit score company, but the TransUnion, Experian and Equifax credit reporting agencies all have their own versions. All scores are calculated with similar formulas, and liens affect the final number.

Definition

A lien happens when you do not pay a debt and the person or company to whom you owe money takes court action against you. A successful legal judgment lets the lender attach a lien to your house or other property. Sometimes this forces sale of the property to satisfy the judgment, but the lien usually stays in place until you want to sell it yourself, which forces you to pay the owed amount first. Court-ordered liens appear on your credit reports and are figured into credit score calculations by FICO and the three agencies.

Types

There are different types of liens, all related to unpaid bills. For example, a contractor who works on a house can get a judgment if the homeowner does not pay for the services. A mechanic can put a lien on a car if the vehicle's owner defaults on a repair bill. Government agencies like the Internal Revenue Service can put tax liens on property for unpaid debt.

Effects

Your credit score is based on many factors, like the number of accounts you currently have, the owed balances and your available credit. Your payment history on those accounts also strongly influence your score. A lien is always bad, but its exact effect depends on those other factors, according to the "Ask Bill" column on Bills.com. High debt and a poor payment record combine with a lien to bring your score into sub-prime territory. It will not be as low if all your current accounts are being paid on time and you keep your owed balances low.

Time Frame

Most unpaid bills and lien judgments are automatically removed from credit reports after seven years, but tax liens last much longer. Experian explains that unpaid tax liens stay on reports for 15 years, although they are erased once they are paid. They affect your credit scores for the entire reporting period, but their influence drops as they age. You can offset an old lien's effect by building good records with your newer accounts.