In the wake of the 2008 financial crisis, lenders aren’t as eager to approve loan and credit card applications. That means consumers must be more diligent in preserving their credit worthiness.
If you’re facing a lawsuit, you may be wondering whether the outcome will affect your credit score. The answer? It depends. And what about if you’re the one filing the lawsuit?
Does Filing a Lawsuit Impact Your Credit Score?
If you’re the one filing a lawsuit, will your credit score be impacted? Probably not.
It doesn’t matter if you’re suing the government of California or your neighbor down the street; filing a lawsuit probably won’t impact your credit score.
But if a judgment is made against you, the effects may be very different.
Can a Lawsuit Hurt Your Credit?
Yes. FICO says there are certain situations in which public records would have an effect on your creditworthiness.
Lawsuits, foreclosures, bankruptcies and other financial-related public records will likely be a factor in your credit score because they contain financial information. That information is usually reported to the credit bureaus.
A lawsuit can affect your score if there’s a judgment against you. Along with owing money as part of the civil judgment, there are also legal costs that will add to your monthly expenses.
Can You Prevent Your Score from Dropping?
Yes. Losing a lawsuit and having a judgment against you doesn’t automatically mean that your credit score will take a hit. You have the power to keep your score intact if you take a smart approach.
First and foremost, make sure that you’re still paying your bills and paying off your debts during and after the case.
Having to deal with a lawsuit can be stressful, and you may feel overwhelmed. It’s easy to forget to pay a bill here and there in this scenario, but missing one payment will only add to the stress. Not only will you have to pay late charges, but you’ll have to worry about the issue being reported to the credit bureaus.
If there is a judgment against you, make an effort to pay it off in full as quickly as you can. Failing to pay the judgment in a timely manner may result in it going into collections, which will only add to your monthly bills and stress.
How Long Does a Lawsuit Affect Your Credit?
A negative public record can stay on your credit report for 7-10 years. Tax liens typically stay on your report indefinitely.
Judgments from lawsuits usually stick around for seven years – even if you pay off the judgment quickly.
It’s best to avoid a negative judgment altogether if you can, but if the other party won’t drop the suit, you may have no other option but to accept the impact it will have on your credit. In some cases, consumers can dispute the judgment later on and have it removed from their credit reports. While not impossible, this is an uncommon scenario.
Lawsuits can impact your credit score if there’s a negative judgment against you, but continuing to pay your bills and paying off the judgment as quickly as possible will minimize the impact.