The circumstances surrounding placement of a lien on a boat that you own may have an impact on your credit score. Individuals and businesses can place liens for a number of different reasons. In some instances credit rating agencies have no knowledge of liens, which means that these liens do not appear on your credit report. However, other situations involving liens can cause serious damage to your credit score.
Liens
A lien represents an interest that a party has in a piece of property owned by another individual or entity. Legally, a lien does not exist until the lien holder records it. Laws related to the placement of boat liens vary from state to state but you typically place a boat lien by filing a lien document at your state's department of motor vehicles. A county clerk records the lien and the lien remains in place until you release it. You normally release a lien by signing the boat title or by filing a separate form known as a satisfaction of lien. The boat owner cannot sell or transfer ownership of a boat with an outstanding lien.
Public Records
Recorded liens appear in your local county's public records and anyone can access information pertaining to liens. If you finance a boat, the lender places a lien on it. Creditors can also take you to court if you fail to pay your debts and a judge could allow a creditor to place a lien on your boat so you cannot sell it until you repay the debt. Most lenders and debt collection agencies make regular reports to the credit bureaus so the bureaus may find out about your debts from these entities. Alternatively, credit bureaus can also gather information by reviewing public records so the agencies may learn of the lien even if the lien holder does not notify the agencies about it.
Boat Loans
The placement of a lien on your boat by a lender does not have an impact on your credit score but the loan that you secured with the lien does have an impact on your score. Whenever you establish a new credit account, your credit score drops by a few points because new accounts lower your average length of account history and this hurts your score. Additionally, when you take out a new boat loan, you initially owe 100 percent of the loan amount and your credit score also suffers when you have high balances on your debts. However, if you pay your other debts on time then a new boat loan should have only a minor impact on your score.
Judgment
A lien that a creditor or other party places on your boat as the result of an unpaid debt does have an impact on your credit score. Such liens are placed as a result of a court judgment and the judgment causes the lien to have a negative impact on your score since a lien placement in isolation would not hurt your score. Liens tied to bad debts and judgments remain on your credit report for seven years. These liens, like foreclosures and repossessions, can significantly reduce your credit score and impact your ability to qualify for new credit products.
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