Will Paying Off a Judgment Raise Your Credit Score?

When you apply for a credit card or loan, your lender reviews your credit report. Your credit score rests between 300 and 850 and provides lenders with a generalized estimate of how dependable you are at paying off your debts. A judgment hurts your credit rating -- making it more difficult to obtain new credit and loans.

Facts

A judgment appears on your credit report if a creditor takes you to court over an unpaid debt and the judge decides in favor of the creditor. The court then enters the judgment into your county's public record. The credit bureaus pick up the record of the judgment against you, match it to the personal information contained within your credit file and insert it onto your credit report. This causes your credit score to drop.

Significance

Paying off a judgment does not remove the judgment from your credit report. The judgment notation will simply update as "paid." Thus, paying off your outstanding debt after your creditor wins a lawsuit against you won't improve your credit score. It will, however, stop the creditor from recovering the debt through a wage garnishment, bank account seizure or real estate lien.

Time Frame

The judgment, whether paid or unpaid, won't remain a permanent fixture within your credit file. The Fair Credit Reporting Act notes that a judgment will remain on your credit report for a minimum of seven years. If your state gives the creditor longer than seven years to enforce the judgment, the notation will remain on your credit report longer. California, for example, allows creditors to pursue judgment debtors for 10 years. As a result, a judgment levied in California would remain on your credit report for 10 years rather than seven.

Misconceptions

Many individuals believe that they can negotiate with the creditor and have the judgment removed in exchange for payment. While this may occasionally work with collection accounts, a creditor cannot remove a judgment from your credit report since the judgment was reported by the court -- not the creditor itself. Once the judgment "times out" and is no longer a part of your credit history, your credit score should immediately improve.

Considerations

You have the right to contest a judgment if the judgment was levied against you in error. If, for example, you did not receive notification of the pending lawsuit or you did not owe the original debt, you have the right to return to court and file a "motion to vacate." Should the court approve your motion, it will grant you a new hearing and an opportunity to present your case. If you are successful, the court will overturn the original judgment and remove it from your credit file.