How Is Credit Report Affected by Garnishment?

Your credit report lists a variety of personal financial information, from your address and workplace to your loans, credit cards and other accounts. It also lists certain court actions, such as bankruptcies, judgments and wage garnishments. Creditors, insurance companies and employers use your credit reports or your credit score, which is compiled from the information in those reports, to make important decisions. It is critical to know how certain things affect your credit so you will be prepared if you have financial problems.

Definition

A garnishment is a legal action in which a credit attaches part of your wages. This means your employer must sent part of each paycheck to the creditor as ordered by a judge, according to the Home Buying Institute. A garnishment can only be initiated through a court proceeding. It will show up on your credit report just as other financial-related court actions like repossessions and judgments do. There is a cap on the amount the creditor can take from each paycheck, and some states do not allow wage garnishments for certain debts.

Purpose

A garnishment gives a creditor a way to collect on a past-due debt when all other means have failed. The Home Buying Institute explains that it is usually used as a last resort. Your credit report will already be affected by the unpaid debt. The credit will decide that you should be able to pay it because you are working and that you are worth pursuing legally. It will use the garnishment as a way to force repayment because it collects the money automatically once a judgment is entered.

Contents

A garnishment listing on your credit report will contain certain information. The Home Buying Institute states that it will include the location of the court where your case was heard, plaintiff and defendant names, case number, amount owed and the case status. All of this information is a publicly available.

Effects

A garnishment has a very bad effect on your credit report because it shows that you had enough income to repay a bill but refused to do so. This will make other creditors leery of opening an account for you because of the risk that you will default. Insurance companies may be reluctant to issue a policy because they see you as a bad risk, and employers may refuse to hire you because they believe you are financially irresponsible.

Time Frame

Like most other negative information, a garnishment will remain on your credit report for seven years, the Home Buying Institute explains. It is usually removed automatically at the end of the reporting period. You can dispute it with the credit bureaus if it still shows up after that time period. They will be forced to remove it under the terms of the Fair Credit Reporting Act.

Prevention

You cannot completely prevent or minimize a garnishment's effect on your credit, but there are ways to offset it. FICO, the most prominent credit score company, explains that current information has the most weight with creditors. Creditors will see that you are trying to regain financial responsibility if you build up a good credit record in the months and years after the garnishment. Paying your bills on time is the best way to fight a garnishment's effects, according to FICO. Your payment record makes up 35 percent of your total credit score. You can also dispute other negative credit report entries that are in error. They will be removed if the credit bureaus are unable to verify their accuracy after you challenge them.