Incorrectly reported judgments on your credit report can damage your credit score. You can have them removed, but it may take some work.
June 03, 2012 /24-7PressRelease/ -- We all have heard of credit scores, those three-digit numbers that have something to do with your credit rating. The numbers are created by the three credit-reporting agencies, Experian, TransUnion and Equifax.
What some people don't know is that inaccurate reports of court judgments can seriously affect your credit score without your knowledge.
The numbers are often called "FICO scores" because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company, known as FICO.
You have three FICO scores, one for each of the three credit bureaus: Each score is based on information the credit bureau keeps on file about you. As the information changes, your credit scores are adjusted as well. Your three FICO scores affect both loan amounts and what loan terms such as interest rate that lenders are willing to offer you at any given time.
Your score is based on four factors: personal information, accounts, inquiries and negative items. The accounts are your loans and credit-card accounts along with their payment histories. Inquiries are what happen when potential creditors review your report to determine if they should approve requests for car or home loans, or applications for new credit cards.
Inquiries also include information requests by companies reviewing your credit report to decide whether to offer you preapproved credit cards or loan offers.
Finally, your score includes certain negative items, including delinquency information when you miss a payment to a creditor or a debt is turned over to a collection agency. Negative information also covers public-record information, like bankruptcies, foreclosures, liens, taxes, garnishments, lawsuits and judgments.
How Does a Judgment Affect a Credit Score?
While the reporting agencies do not divulge exactly how they calculate credit scores, a negative court judgment is among the worst items to have listed on your credit report.
If the amount is large and recent, the judgment can have a serious impact on your score. A potential lender will see the large judgment outstanding and will presume you will eventually have to pay that amount, meaning you have that much less "liquidity" that you could have otherwise used to repay its loan.
The existence of a judgment against you also suggests you may be reckless in your financial management and forced a creditor to sue in order to get its money back. Since this requires the lender to hire an attorney and go to court, it is expensive and time consuming, and a lender would rather do business with those who make their payments on time.
Mistakes Have Been Made
If you have an incorrect judgment on your credit report and you attempt to have it removed, you are often in for a struggle. The credit reporting agencies make millions every year selling your credit history. They don't make money fixing your records, so they devote few resources to correcting errors.
They claim that only one percent of reports contain errors, but it's hard to say what the true number might be, because errors tend to be found by consumers, not credit agencies. Many people go years without looking at their credit reports, and may have no idea they contain errors.
If they have stable credit, and already own homes and cars, they may not notice, because it has no immediate effect on their lives. But if someone needs to buy a home, rent an apartment or buy a car, and needs to take out some type of loan to do so, he or she will notice.
How to Correct an Error
If you find a judgment on your credit report that is not yours, you can contact the three agencies and attempt to have them remove the error. Because correcting errors may be time consuming for the credit bureau, they may not be responsive to your request.
A more effective strategy is to contact your state attorney general's consumer affairs division. It probably has dealt with these issues before and has contact information to help reach someone to correct the error. Additionally, a credit bureau may respond more quickly when the attorney general's office is on the line.
What if You Do Have Valid Legal Judgments on Your Credit Report?
What should you do if you really have a judgment or bankruptcy on your credit report? What can you do to improve your credit score? The simplest answer is to pay your bills on time.
If you have completed a bankruptcy, it should be easier to keep your bills under control, since you should have discharged all of your debt (except for nondischargable items, like child support and most student loans), so your debt burden should be greatly reduced.
The quickest way to rebuild your credit report is to control your spending, so you only spend what you can afford. Use a budget and stick to it.
If you pay all of your bills on time, your credit report will reflect this. After a few years, the newer "positive" elements of the report will begin to outweigh the older "negative" elements, raising your score.
Lastly, everyone should check his or her credit reports once a year to ensure their accuracy. You can do this for no charge through the government mandated AnnualCreditReport.com site.
Article provided by Law Offices of Michael H. Johnson, P.A.
Visit us at www.attorneydebthelper.com
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