Negative marks on your credit report can happen. Unfortunately, since your credit history is one of the few ways a lender can judge how you manage your finances, any blemishes can cause a great deal of grief. These issues can be embarrassing and so the first response is to gloss over or maybe even try to explain it away. The best thing you can do is to own the issue. It’s a judgement and it’s on your credit report.
The judgement can be pending, open, or satisfied (or some verbiage to that effect). A pending judgement probably won’t report to your credit report; however, you are obligated to disclose this to your lender when you take application (if you want to know more about this, comment and I’ll blog more about the loan application). An open and satisfied judgement typically will report on your credit report.
A pending and open judgement raise the most concern. A satisfied judgement means you have dealt with the issue although it probably will continue to affect your credit score for a period of time. Other than the negative affects on your credit score, the lender won’t typically bother you about it.
What’s the harm in a pending or open judgement? A judgement can attach itself to real property. In other words, the judgement will become a lien against your home. Because your home is collateral for the bank the last thing they want is something jeopardizing their position. Among other things, a large collection has the potential to turn into a judgement which is why a lender might ask you to pay it off before you can close.
Regardless of who or why the judgement is in place, it MUST be satisfied prior to or at the time of closing. Your lender won’t take the risk if it’s not.
Pay off the judgement at closing if your lender will allow.
The mortgage process can take a while, and sometimes they have to re-run your credit report. If you pay off the judgement before you close and the lender has to re-pull credit your score might actually drop and could jeopardize your approval. It’s a credit bureau thing so don’t ask me to explain (although I can if you want me to).
How do you satisfy a judgement?
As suggested above, you must pay it off. That typically means working with the law firm, municipality or individual who placed it there in the first place. You may be able to negotiate a smaller payoff if you work at it but regardless, you must obtain a release of judgement. Make sure that the release of judgement gets recorded at your local court-house because, once filed publicly, the credit bureaus can pick it up as satisfied for the future.
Now that you’ve taken these measures to satisfy it, all you have to do is sit back and watch your credit heal!