Certain financial actions look bad on your TransUnion, Equifax and Experian credit reports and reduce your credit score, which is compiled by FICO (Fair Isaac Corporation) and the credit bureaus. Typical negatives include not paying bills on time, skipping payments entirely and having court judgments for debts lodged against you. The amount of impact is based on the length of your credit history and how you handle all your accounts, but judgments always hurt to some extent.
Definition
A credit card judgment is a successful court action by the card issuer or a collection agency that purchased a written-off credit card debt. It happens when the bank or debt collector sues you for the outstanding balance and the court rules against you. Credit reports include financially related court records, so TransUnion, Experian and Equifax all include judgments in your records. Lenders see this information, and it figures into your credit score.
Effects
Judgments are particularly bad for your credit score because they are considered part of your payment history, a category that makes up more than a third of your total score, according to the MyFICO scoring website. Other items in this category include late and missed payments, accounts that were written off as bad debt, house and property foreclosures and car repossessions. The Certified Mortgage Planning Specialist Institute warns that judgments make it harder to open new accounts and may prevent you from getting a major loan like a mortgage, unless you pay the owed amount.
Time Frame
Generally you have time to satisfy a bill before a creditor or collection agency files a lawsuit. MSN Money writer Liz Pulliam Weston explains that credit card issuers generally wait six months before writing off a bill and selling it to a debt collection agency. Collection agencies do not always sue but may do so if they believe you have the means to pay the bill, even though you refuse. Banks sometimes sue rather than charging off old accounts if the amount is high and they believe they can recoup the money. According to the Federal Trade Commission, judgments affect your credit for seven years, after which they get removed from your credit files.
Warning
Old credit card debts sometimes get sold and resold for pennies on the dollar, even after the statute of limitations for lawsuits runs out. Each state has its own time frame (see Resources), and debt collectors can no longer legally get a judgment against you when it expires, according to Pulliam Weston. Unscrupulous firms may sue anyway, hoping they get a default judgment because you do not respond. Consult a lawyer if you get threatening phone calls about old credit card bills that are past your state's allowable collection period.
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