How Much Does Satisfying a Judgment Improve Your Credit Score?

Your credit score takes many financial activities into account. All your credit-related accounts, such as major credit cards, gasoline and retail accounts, mortgages and other loans, appear in detail, including the balances and payment histories. This data figures into your credit score, as does any related court actions.

Definition

A judgment hurts your credit score because it results from long-term unpaid bills. The Bankrate financial information website explains that credit card issuers, finance companies and other lenders initially try to collect their money through telephone, email and mail demands. These creditors may sue you if you are not responsive, or they may sell the debt to a collection company. The collector can make its own collection attempts and sue you later or file a lawsuit immediately. All of this activity is added to your credit bureau records with TransUnion, Equifax and Experian and is reflected in your credit score. A judgment means the creditor or collection has sued and gotten a court order against you. The judgment is a public record and also becomes part of your credit reports.

Impact

Lenders who review your credit reports before approving applications may turn you down because of the judgment and the delinquency leading up to it. Judgments result from refusal to pay a debt, which makes you look like a risky borrower. The MyFICO website warns that these court actions also pull down your score, which is based on your credit report data. The exact amount of the drop depends on your previous records and the status of your other accounts, but Motley Fool money management website writer Dayana Yochim explains that judgments are equivalent in impact to 90-day late payments or repossessions.

Pay-Offs

Satisfying a judgment with a pay-off does not help you unless you negotiate a change in status on your credit reports. A paid judgment stays in TransUnion, Equifax and Experian files for seven years, so creditors still know that you had a defaulted bill, and it continues to hurt your score. The credit report entry must be removed to stop its score-reducing effects. Carreon and Associates, a credit repair website, recommends offering a settlement to the creditor in exchange for dismissing the judgment. Get the deal in writing before making your payment. The judgment should disappear from your credit reports, and your credit score should go up within 30 to 45 days of the time the creditor files dismissal paperwork. Actual score improvement varies, depending on your overall credit records. It may be significant if you have no other negative data on your reports, or the improvement may be minor if you still have many delinquent accounts.

Considerations

Your creditor automatically gets a default judgment if you do not show up in court. The Carreon and Associations site recommends being present and disputing the judgment's validity if there are any grounds to do so. Otherwise, you may be able to settle before the case is heard.