Removing a Judgment from Your Credit Report

If you have one or more unpaid debts that have been turned over to a debt collector or debt collections agency, then you can expect your creditor to sue you for the unpaid debt at some point. This will usually mean bad news for your credit report and your credit score, but in some instances, you can get this negative information removed from your credit history. If a creditor has entered a judgment against you, here’s what you’ll need to do to get it removed from your credit report. 

Understanding Judgments

When a creditor sues you, it’s a civil rather than criminal case. Your creditor does have the right to enter a judgment against you in court if you have a debt that you have not paid. If the judge agrees with the plaintiff (your creditor), you will have a civil judgment filed against you. 

If the debt has been sold to a debt collection agency, the debt collector that is named in the summons will be different than your original creditor. For example, if you have a Citi Mastercard credit card, Citi may sell your delinquent account to the Midwest Debt Collection Company, which is a division of Capital Partners, LLC. So the creditor listed on the summons could be Midwest Debt Collection Company or Capital Partners, LLC. It will depend on how the debt collection company is structured. 

Whatever you do, if you are notified of a judgment against you, don’t ignore it. If you receive a legal summons and don’t respond, the judge can enter a default judgment against you. This means that the plaintiff automatically wins because you didn’t challenge the case. You may be able to hire an attorney to vacate the default judgment. Having the default judgment vacated essentially means it’s canceled and the case is reopened, so you can challenge the plaintiff’s claim.

Whether this is possible will depend on why you didn’t answer the summons. If you didn’t answer simply because you have no defense against the creditor (for example, you didn’t pay because you couldn’t afford to), then this option will probably not be available to you. 

Once a judgment is issued, the plaintiff has access to additional tools to collect the money, such as wage garnishment and bank levies. If the government wins a case against you for not paying taxes, they can put a tax lien on your property to force you to sell it to pay the debt. 

How Judgments Can Affect Your Credit Score

Your credit score is a reflection of your credit history and shows potential lenders how risky it is to loan you money. It also helps them decide what terms to offer you on new credit. Over a third of your FICO score is based on your payment history. If you always make your payments on time, your credit score will be higher. If you have a history of missing payments, it will be lower. 

Having a judgment on your credit report tells lenders that you have a history of missing payments. It will also lower your credit score, sometimes significantly. As a result, lenders will view you as a riskier borrower, and this will affect what terms they offer you. If you have a high credit score, lenders will view you as a low-risk borrower and can extend you new credit at a lower interest rate. If you have a low score, lenders may only offer you credit at a high interest rate, or they may deny your credit application. Borrowing money at a high interest rate costs you a lot in the long run. This is why it's so important to respond to any summons you receive and avoid getting a court judgment against you. 

Your credit score is an important part of your personal finances. If you want to get a loan to buy a car, home, or other big-ticket item, lenders will use your score to determine your interest rate and credit terms. But lenders aren’t the only ones interested in your score. A prospective landlord may check your credit report as part of the rental application process. If you need to find a place to live and you have judgments on your credit report, you will have a harder time finding a landlord or mortgage company to work with. You may have to make a larger deposit or pay a higher interest rate on your home loan. You may also be denied altogether if your credit is bad enough. 

How the National Consumer Assistance Plan (NCAP) Helps You

All consumers have the right to have only accurate information on their credit reports. Anyone submitting incorrect entries can be penalized. But many people felt more could be done to ensure the accuracy of consumer credit reports. The National Consumer Assistance Plan (NCAP) was created to address this. The NCAP is the result of a settlement between the three major credit bureaus (Experian, Equifax, and TransUnion) and about 30 state attorney generals in 2017. On top of many other provisions, the NCAP prevents information such as public court judgments from appearing on consumer credit reports. 

Though the Consumer Financial Protection Bureau (CFPB) reported that the NCAP’s impact on consumers’ credit scores was minimal, it did have an important, positive income on some people’s scores. Consumers who had paid off the debt in a judgment saw their credit scores increase once these judgments were removed from their credit report. 

Under the plan, new judgments will not appear on borrowers’ credit reports. This will help protect borrowers’ credit scores when they can’t keep up with their payments and must let certain debts go unpaid for at least a while. But old, unsatisfied judgments or vacated judgments that are grandfathered in under the old rules will still appear on borrowers’ credit reports. 

Other notable provisions of the plan include:

• Consumers who’ve disputed their credit score are allowed to get a new, free credit report after the inaccuracies have been removed. Prior to the plan, consumers would have to wait to pull their free yearly report.  

• Medical debts cannot appear on consumer credit reports for six months. This gives insurance companies time to pay the debt. Medical collections that were previously reported to the credit bureaus but have since been paid will also be removed from consumer credit reports.

• Certain types of debt such as traffic and parking tickets will also no longer appear on credit reports. 

• The credit bureaus will pay special attention to identity theft cases and to consumers who have someone else’s information on their credit report. Consumers should see improved communication around these issues and more options to fix them.

Remove Old Judgments from Your Credit Report

As with any item on your credit report, you have the right to dispute any judgment or charge-off that you see on your report. You can write a dispute letter to the court that issued the judgment to ask them to validate the debt. The judgment may have been reported in error or may already be satisfied (paid), in which case they will not be able to validate it. You can also write to the credit bureau and ask them to remove the judgment from your credit report under the new rules of the NCAP. 

When you are contesting a debt, it cannot appear on your credit report. This is one of the basic tenets of credit repair. If the information is found to be incorrect, the credit bureaus must remove it. If the credit bureaus fail to do this, they and the original creditor could be subject to penalties. If you notify the credit reporting agencies about incorrect information on your report and they refuse to take action, you can consult with an attorney about filing a lawsuit. Or you can get help from a credit repair company that may carry more weight with the credit bureaus. 

Reach an Agreement With the Judgment Holder

If you ask to have an item on your credit report validated and it comes back as valid, that means you owe the debt and will have to take steps to repay it. If you can offer the lender a reasonable amount that won’t drain your bank account, you may be able to settle the debt for less than you owe and pay off the judgment. Most creditors will do a debt settlement because they would rather get something than nothing. 

You should also make your settlement offer contingent on the creditor writing to the credit bureaus to have them remove the judgment from your account. This way it will no longer show up on public records. If you make a settlement offer, make sure you will be able to pay the settlement amount without financial hardship. Also, if you make a debt settlement agreement, be aware that your creditor may send you a form 1099-C come tax time. This form shows the amount of debt the creditor forgave. You have to report this as ordinary income on your income tax return and pay taxes on it. 

Don’t ignore this form if you get it because your creditor will also report this “income” to the IRS. They will check the amount reported by your creditor against the amount of income you report to see if they match. If the IRS finds out that you had a debt forgiven that you didn’t report, they will assess tax on that amount and bill you for the balance that you owe. Even if you have to pay income taxes, settling the debt for less than you owe may be easier and cheaper than paying it off in full.

Let’s Summarize...

Judgments give judgment creditors additional tools to collect money from you, as long as the statute of limitations has not passed. If a creditor gets a judgment against you they may be able to garnish your wages or levy your bank account. Judgments can also negatively affect your credit score. They indicate to potential lenders that you have not reliably paid your debts in the past.

The National Consumer Assistance Plan, established in 2017, changed what can appear on your credit report. It prevents public records like court judgments from appearing on your report. Though old judgments may still be on your credit history. Don’t be afraid to dispute incorrect information on your credit report. If you can prove you paid a judgment or that one has been listed in error on your credit report, ask to have it removed from your credit history. If you truly owe the debt, you may have to set up a payment plan to settle it.