What Is a Judgment for Credit Scores?

A judgment means someone has won a small claims case against you, but it may not affect your credit score much. The impact of a judgment depends in part on other items on your credit report. If a debt gets to the point of requiring litigation, you might already have a poor credit score. The best thing you can do it is pay it off and try not to make that mistake again.

Identification

The credit reporting bureaus list public judgments when they relate to a person's willingness to repay a debt. This typically is limited to anything that involves money, such as an order for a wage garnishment, bank levy or unpaid tax lien. Criminal cases and judgments not directly related to money, such as a divorce, cannot appear on a credit report and do not affect FICO credit scores.

Considerations

Judgments typically are the final action a creditor takes on a debt, and everything after that is a collection matter. This means the creditor probably has already reported the debt as several months late to the credit bureaus, unless the lender does not subscribe to them. Any payment more than 90 days late is almost as damaging as a bankruptcy as far as lenders are concerned, according to John Ulzheimer of the SmartCredit website. Because your score probably is already quite low, a new judgment might not lower your score much, because you have fewer points to lose.

Reporting Time Period

The Fair Credit Reporting Act allows the credit bureaus to report public judgments for seven years after the plaintiff files the case. Paying off a judgment makes a better impression on potential lenders than a unpaid claim, but it might not improve your score much, because you let the debt go unpaid so long. However, judgments damage scores less and less over time. If you pay it off immediately, you can start rebuilding your credit score.

Tip

Try to negotiate with a creditor before he files a court case. If you owe the debt, the creditor most likely will receive a judgment, so you end up paying the debt anyway. Collection agencies and creditors prefer to avoid court because of the legal costs involved. They might agree to a deal that allows you to satisfy the debt by paying less than you owe. One way to avoid a court case is to work out a payment plan with your creditor.