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How to Handle an Unexpected Judgment on Your Credit Report

Oct. 24, 2016
Credit Score, Paying Off Debt, Personal Finance
How to Handle an Unexpected Judgment on Your Credit Report
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A judgment is one of the scariest things you can find on your credit report: It means you have been sued for a debt in civil court and lost.

If it comes as a surprise, you probably didn’t know about the lawsuit and the court entered a default judgment because you failed to appear.

Here’s what to do if an unexpected judgment shows up on your credit report.

Investigate whether the debt is yours

When you see an unexpected judgment on your credit report, ask one crucial question: Is this debt really mine?

It can be hard to tell — a creditor may bill under another company name, or the original creditor may have sold the debt to a collection agency.

Your credit report will note what court handed down the judgment. Contact the court to get a copy of the judgment. (Search for the name of the court to see if you can do this online; otherwise, call the court and ask how to proceed. Sometimes an in-person visit is required.)

You may find that although you didn’t recognize it, the debt really is yours. Or you might discover the judgment is the result of a clerical error or a mixing up of similar names.

What to do if it is your debt

“Consider paying it if you can or trying to negotiate a settlement,” says NerdWallet columnist Liz Weston. “Otherwise, the judgment will continue to accrue interest that increases what you owe, and you may be vulnerable to wage garnishment.”

Whether you pay the full amount or settle the debt for less, make sure you get the creditor to acknowledge it in writing. You want documentation that the judgment has been satisfied and you no longer owe it. Follow up to make sure the judgment is marked “satisfied” on your credit report.

If this debt is part of a bigger problem, however, your best option may be to get it discharged through bankruptcy.

You might want to consult a lawyer to see if the judgment can be set aside, or “vacated,” for some reason — for instance, if you were not properly notified of the lawsuit that led to the judgment. But getting the judgment vacated doesn’t necessarily mean the problem goes away. It just means you get a chance to present your side in court, in hopes of winning the lawsuit the creditor brought.

What to do if it’s not your debt

If the judgment appears to be a clerical error or name mix-up, approach it like any other error on your credit report and dispute it with the credit bureau.

If you think the judgment comes from debt run up in your name by someone else through identity theft or fraud, immediately place a fraud alert or credit freeze to guard against further damage. Then dispute it with the credit bureau.

If the credit bureau cannot validate the information, it must remove it from your report. But if the bureau responds by verifying the debt is yours when it isn’t, you may need to seek legal help.

No matter what, don’t just ignore it

Judgments do serious harm to your credit score. A judgment allows creditors to seek repayment by having your wages garnished, filing a lien against your property and more. And, in some states, creditors can return to court to get the judgment renewed, so it can be in effect for years.

That’s why you should never ignore a notice of a debt lawsuit, even if you think you don’t owe it. Failure to appear in court can lead to a default judgment.

Similarly, if you were never notified of a suit but see a judgment on your credit report, don’t ignore that, either. If it’s from an error or fraud, you shouldn’t pay the price.

If it turns out to be something you do owe, you can make a decision on the best way to handle it. And once you get the judgment behind you for good, you can begin to restore your credit.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.