A credit card lawsuit can be pesky. It can make your life hell. The legal paperwork, the excruciating trials, attorney fees, etc. can create turbulence in your mind. But above all these things, there is yet another sector that can derail your already unstable financial life. And that is your credit score.
Creditors file a lawsuit against you when you have not shown any sign of making payments on your delinquent debts for almost 180 days. Initially, creditors will send your account to the in-house collection department. You get collection calls from the in-house collection department for several days. Even when you refuse to make payments even then, creditors decide to file a lawsuit against you.
But how does a lawsuit affect your credit score? Delinquent debts have already dropped your credit score by now. A further blow to your credit score could throw you off guard, which can be fatal.
Well, don’t panic. In this post, we will tell you how a lawsuit affects your credit score and what you can do about it. Knowledge is your greatest weapon. It can help you to fight the biggest battles smartly.
How a lawsuit affects your credit score
Well, Equifax and Experian don’t report lawsuits to credit reports. This means they don’t hurt your credit score. However, there is a catch.
If you don’t answer the summons, then creditors can win the case easily. In that case, the judge will issue a default judgment against you, which gets reported to credit bureaus and ultimately to your credit report. This hurts your credit score.
Bankruptcy, tax liens, and judgments can drop your credit score by 150 points or more. So, if your current credit score is 700, then a judgment can pull down your credit score to 550. Jeez! That’s a big drop in your credit score.
What if you respond to the credit card lawsuit? Well, if you give a reply to the lawsuit and attend the court hearings, then your precious credit score won’t drop until the case is resolved.
The judicial system has its way of working. It could take several months or years to resolve a case. There won’t be any effect on your credit score until your credit card lawsuit is resolved successfully. If you lose the case and the judge issues judgment against you, then your credit score will drop by about 150 points. If you win a lawsuit and the court doesn’t issue a judgment against you, then your credit score won’t drop. But that doesn’t mean your credit score will go up either. Your credit score won’t increase until you build positive credit.
How to build positive credit
When your credit score is low due to judgment or delinquent debts on your credit report, you can use the following tips to rebuild your credit.
- Reduce the credit utilization ratio by paying off debts.
- Make timely payments on your credit card bills.
- Remove inaccurate negative information from your credit report.
How to avoid a credit card lawsuit
A credit card lawsuit is not good for you – both emotionally and financially. So you should always try to avoid a credit card lawsuit by all means. Here’s how you can do that
- Pay your credit card bills on time.
- Take care of your delinquent debts before creditors file a lawsuit.
- Use effective get out of debt strategies to save money and avoid a lawsuit.
A judgment affects your credit score and appears on your credit report for 7 long years. That is quite a long time. If a creditor or a collection agency has filed a lawsuit against you, then consult an attorney and give a reply to the summons within 21 days. This may help to avoid judgment for some time and safeguard your credit score.