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Lost a court case? Your credit score could take a hit

Summary

A reader facing a lawsuit after a car accident needs to protect herself from the credit score impact from any resulting judgment against her

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Question for the CreditCards.com expert

Dear Credit Score Report,
I have a credit score of 782, and my husband has a credit score of 769. I just found out that I am a defendant in a lawsuit involving a car accident I was in a few years ago. Although my insurance company has attempted to establish contact with the plaintiff’s attorney during the preceding three years, without success, the plaintiff filed a civil suit in my county one week before the statute of limitations was to run out.

Although both my insurance company and I know the plaintiff’s claim is a bogus one  — the plaintiff is using one of those personal injury law firms you see on late-night TV — and I know that my insurance company will do its best not to pay anything at all, I am concerned that this sort of public information could wind up on my credit report, even if I was to be paid a judgment in full.

What sort of impact would a judgment have on my credit score? Would it be prudent to remove myself as an authorized user of the three credit cards I hold jointly with my husband, thereby raising my credit score, prior to any judgment being recorded? Thank you for any information you can provide. — Mary

 

Answer for the CreditCards.com expert

Hey Mary,
You seem certain you’ll win the court case, and if that’s so, you have nothing to worry about. If the suit goes your way, your credit report will be unblemished. In fact, if you file a counterclaim, the other driver could be the one facing a judgment and the mark on his credit report in the “public records” section of the report. “If Mary prevails in court … no public record would appear in her credit history,” says Maxine Sweet, vice president of public education with credit bureau Experian. “If a judgment is filed against the plaintiff then it would appear in that consumer’s report.”

But what you — and many other consumers — should worry about is if the ruling goes against you. In that case, there could be credit score damage on the road ahead. As with other debts, when you owe money as a result of a civil judgment, it can appear on your credit report.

Third-party vendors collect this information from state and federal courts, and then share it with the credit bureaus. “If a civil suit is filed specifically against her, a judgment resulting from the suit likely would appear in her credit report,” says Experian’s director of public education, Rod Griffin. The appearance of that judgment can impact your score. A “judgment resulting from the lawsuit, even if paid, can be expected to lower Mary’s FICO score in much the same way as a defaulted loan or charged-off credit card debt would,” says Barry Paperno, consumer operations manager for myFICO.com.

But removing yourself as an authorized user probably isn’t the solution, experts say. “The judgment appears as a public record in a credit report and has no direct effect on accounts included in the credit history,” Griffin says. That includes any accounts shared with your husband, which based on your similarly high credit scores, probably aren’t hurting either of you. “At best, removing herself as an authorized user from his cards could result in a slightly higher score following the judgment, while at worst, her resulting score could end up lower than if she were to remain on his three cards,” Paperno says.

So if the court case goes against you, you should take action. “The best thing she could do if the lawsuit results in a judgment would be to pay it promptly and to continue to pay any other debts responsibly,” Griffin says. “Doing so will help minimize the impact of the judgment and help her recover as quickly as possible.” Paperno adds that quickly paying that judgment will also prevent the debt from being passed along to a collection agency, “which could lower her score further if the collection agency were to report this debt to the credit bureaus as well,” he says.

There are some other possible solutions to erasing a judgment from your credit report. One to avoid? Paying any company that promises to delete court judgments from your credit report. While there’s a cottage industry of businesses that make such claims, court judgments — just like any negative but accurate information — will remain on your credit history for up to seven years. “If the judgment shows up, she can try disputing it, but I’m not sure she’d have much success,” says Chi Chi Wu, staff attorney with the National Consumer Law Center.  (For more on challenging such information, read “How to dispute credit report errors.”) Wu also suggests that if the case goes sour, consider paying off the other driver or getting a dismissal of the lawsuit as part of a settlement.

Wu says the threat a judgment represents is another example of the injustice of credit reporting. “This situation demonstrates one of the problems with credit reporting and scoring,” Wu says. “In some cases, a negative mark on the credit report is due to no fault of the consumers. ”

Good luck!

–Jeremy

See related:How to dispute credit report errors, FICO reveals how common credit mistakes affect scores, Experian aims to make credit reports more readable, Unpaid traffic citations can lower drivers’ credit scoresSurprise! Unexpected items can appear on a credit report

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