Can a Lawsuit Affect Your Credit Report?

A lawsuit is simply a set of allegations and does not affect your credit report when initially filed. Theoretically, a debtor could receive a dozen lawsuits with none of them impacting credit reports. However, if a judge agrees with the allegations in the lawsuit, the debtor could notice significant negative changes to his credit reports.

Considerations

The possible effect on credit reports depends a lot on the type of lawsuit. A civil lawsuit over fruit from an orange tree falling into a neighbor's yard may force the judge to simply decide who should keep the oranges. The outcome of that type of lawsuit would not affect credit reports. But an allegation by a credit card company that the debtor failed to pay a $5,000 credit card bill could have a major impact on a debtor's credit report.

Records

Damage to credit reports from lawsuits occurs when the judge issues a ruling that is unfavorable for the debtor, such as a monetary judgment. Researchers paid by the credit bureaus collect certain information from court records and furnish it to major credit bureaus such as TransUnion, Equifax and Experian. The credit bureaus then list the information on credit reports.

Impact

In most cases, damage to credit reports and credit scores occurs long before a lawsuit. Creditors filing lawsuits to collect a debt usually do so months or even years after closing the account for nonpayment. Well before the lawsuit the debtor's credit report is hurt by negative information provided by the creditor, including late payments, account closure and charge off, and assignment of the account to a debt collector as a collections account. Those events are very damaging for credit , and so are judgments. Judgments show that a debtor failed to pay an account as agreed, and that the creditor filed a lawsuit to force the debtor to pay. Judgments remain on credit reports for seven years. A recent judgment can make it impossible to qualify for loans at reasonable interest rates.

Bankruptcy

A bankruptcy listing has the most negative impact on credit, and some people battling lawsuits eventually file for bankruptcy to escape bank or wage garnishments. Bankruptcy filings remain on credit reports for a minimum of 10 years.