Small Claims Court & Credit Scores: What You Need to Know

Going to small claims court does not mean the courts will enforce the judgment against you, but it almost always guarantees to lower your credit score. Small court claims are a matter of public knowledge, which means that the credit rating bureaus can find out. Negotiating with creditors before the situations require legal action could resolve the debt and save your credit rating.

Identification

A small claims judgment will affect your credit score because the major credit rating agencies collect public information from federal and local governments, according to Experian. Since a small claims judgment can affect your ability to repay debt, it is factored into your FICO score.

Effects

When a dispute gets to any civil court, it is a sign of a debtor's refusal to pay -- a serious black mark in the lending industry. Judgments impact your FICO score almost much as filing bankruptcy because both show a lack of financial planning. Expect a judgment to drastically cut your credit score, sometimes by 100 points or more.

Time Frame

After seven years, the credit rating agencies cannot report a small claims judgment, according to the Fair Isaac Corporation. Tax liens will stay on your credit report indefinitely until resolved. In New York, all court judgments remain on your credit for five years after successful repayment.

Tip

The Fair Isaac Corporation recommends contacting lenders and negotiating your debt payment schedule rather than ignoring it. Most lenders will try to work out a new payment plan because it is usually cheaper to deal with the debtor himself than pay court fees. The actions that lead up to a small claims case, such as late payments, could have a further negative impact on your credit score.