How Long can a Judgment Impact Your Credit Score?

Dear Let's Talk Credit,

I had a judgment against me for a defaulted bank loan for $5,000 six years ago. There was nothing I could do to clear the debt because I was not in any position to make payments, and was looking forward to it disappearing from my credit report eventually. After five years the judgment was "reset." Does this mean that it will appear on my credit for another seven years, or does only the original judgment appear for seven years? I am now worried this will affect me indefinitely if they choose to renew it every six years! Will it never be erased from my credit report?

- Lori

Dear Lori,

The credit reporting rules for judgments are different from the rules that would apply to the original debt. The Fair Credit Reporting Act (FCRA) states that judgments must be removed from credit reports after seven years from the date of entry "or until the governing statute of limitations has expired, whichever is the longer period."

A judgment can hang over your head a long time. The statute of limitations for collecting a debt using a judgment varies by state, and varies a lot -- periods of five, 10 and 20 years are common. And it gets worse: Many states allow creditors to renew a judgment, and some allow multiple renewals. State requirements to renew also vary. You may need to consult a lawyer to see which statute applies to your judgment.

However, the credit report damage may not linger as long as the judgment itself. Although the FCRA states that the judgment can be reported longer than seven years if the statute of limitations is longer, all three major credit reporting bureaus -- Equifax, Experian and TransUnion -- say they remove judgments from your credit report seven years from the date entered.

You are correct that your credit will be affected by the judgment remaining on your credit report. FICO considers a judgment as a negative, whether it is paid or unpaid. However, the judgment will have less negative impact as it ages. Because your judgment is now six years old, it may not be affecting your credit as much as it did when it was first entered. More recent positive information included on your credit report will help to bump up your credit score.

You should also be concerned with when and how the creditor may use the judgment to collect the $5,000 debt. Some states allow judgment creditors to collect using wage garnishment. It appears your state allows a judgment to be renewed, so the creditor may have many more years to collect on the debt. If you are in a position now to make payments on the debt, you might consider contacting the creditor to see if you can work out payment arrangements on your terms. If you come to an agreement, get it in writing before making payments.

By paying the debt, the judgment will be satisfied and you will no longer have to worry about the creditor eventually using that judgment to collect the debt.

Let's keep talking!