Getting taken to court is never a pleasant experience, but losing a creditor lawsuit can have far-reaching effects that take place beyond the courtroom. Any time a creditor sues you and wins, that information gets included on your credit report, and can negatively affect your credit score. In Texas, as in all other states, credit reports are governed by the Fair Credit Reporting Act, a federal law that applies across the nation.
Credit Report
A credit report is a detailed account of each individual person's history in using various forms of credit. There are three main companies that create consumer credit reports in the United States: Experian, TransUnion and Equifax. Each of these companies maintains detailed information about how you have used credit in the past, and includes such details as your payment history, the amount of money you currently owe and whether you've been sued for failure to pay back your debts.
Civil Judgment
A civil judgment is what happens once a civil court determines the outcome of the lawsuit. For example, if you fail to pay back your credit card debt and your credit card company sues you in court, you may face a civil judgment. Once the credit card company sues you and wins its case, the court grants the company a judgment stating exactly how much you have to pay. Typically, that judgment is listed as a negative on your credit report.
Removal
Under the terms of the Fair Credit Reporting Act, or FCRA, you can typically only remove erroneous or inaccurate information from your credit report. Otherwise, negative information must remain on your report for at least seven years after the date upon which the negative event occurred. If, for example, you lose a lawsuit and the court renders its judgment on July 1, 2011, you cannot generally have that information removed until July 1, 2018.
Other Considerations
Some financial advisers, such as John Ulzheimer of SmartCredit.com, state that some lenders may be willing to remove negative credit information from your credit report in certain situations. These "goodwill adjustments" typically happen for borrowers who, for example, miss a single payment or do some other relatively harmless action that negatively impacts their credit report. However, a judgment is a major negative on your report, and lenders are unlikely, and may even be unable, to remove such information.
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