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Defaults vs Judgments: Which Causes More Damage to your Credit File?

Are you wondering why you may have a bad credit rating even after keeping your credit card balances low or staying below your credit cards spending limits?

Are you wondering why you have a bad credit rating even after keeping your credit card balances low or staying below your credit card spending limits? You may have records of judgment and foreclosure in your credit file and this can lead to a bad credit rating. Having these issues are not necessarily a major stumbling block to improving your credit score, to obtain lower interest finance. In this blog, we discuss defaults vs judgments, exploring the differences, how they negatively impact your ability to successfully acquire finance and if these can be removed.

Defaults vs Judgments: Understanding the difference

What is a Judgment?

A court judgment is a verdict given by a judge that you have to pay back the money you owe. You will then be issued with a court order to pay your creditor what you owe plus interest and legal costs. Your debt becomes a ‘judgment debt’. A judgment debt may be enforced at any time, though after 15 years the leave of the court may be required.

There are three instances when the judge will issue a judgment in favour of your creditor:

  1. You did not file a defence
  2. You did not attend a court hearing
  3. Based on the allegations and supporting documents submitted by the plaintiff, the debt is due and the judgment must be given in favour of the plaintiff.

What will happen if the judge rules against me?

The person you owed money can start remedies for the recovery of your debt. For instance, the bailiffs may come to your doorstep to get the judgment money from you.

What happens when I fully settle my judgment debt?

Judgments may stay on your credit report for up to five years. But, the moment you paid or settled your debt, you can ask your creditor or its attorney to update your report at the credit reporting companies in the country, as paid or settled. Although lenders who conduct a credit risk assessment may still take the entry of judgment seriously, their perspective may change the moment they noticed that you paid off the money you owed already.

Is it a big disadvantage if the lender realises that my previous creditor had to take me to court just for them to recover the money?

Sadly, many lenders would be hesitant in lending money to someone who has to be dragged to court before repaying a debt. But people make mistakes—and if it is one of yours, we believe you also deserve a chance to do better in the future.

What if I appeared and court and the judge set aside or struck out the judgment?

If this situation arises you will need to inform the credit reporting agencies right away. Send a request to remove the judgment record on your credit file and attach copies of appropriate documentation from the court.

What is a Default?

There are two types of default: “payment default” and “order of default”

Payment default refers to overdue accounts. The information will stay in your credit report for five years. An order of default means the lender can get a judgment in their favour without having to go through a trial because you did not appear in court or request a hearing.

One of the consequences of payment default on a mortgage loan is foreclosure. If you default on your mortgage loan, your mortgage lender can initiate a legal proceeding to take ownership of your home. The moment the foreclosure proceedings start our credit file will be updated, showing that your mortgage is in foreclosure. When you don’t pay your mortgage, your home is foreclosed, when you default on car payments, it is repossessed.

Here are the default-related reasons why banks or mainstream lenders will repossess your home:

  1. You missed the first payment and went on and on until the lender decided to foreclose on your home. Foreclosure is not a warning, but a final status for your mortgage. It means that you didn’t exert any effort to repay the loan from the original delinquency date up to the latest missed payment, resulting in the foreclosure status. The foreclosure can stay in your credit file within seven years.
  2. You violated the terms of the contract. When you didn’t pay your mortgage dues, you are defaulting on the mortgage contract. You are violating the terms of the mortgage or deed of trust pertaining to the payment conditions. Missing payments is considered a breach of the payment terms of the contract.
  3. You didn’t fight back. When the banks or lenders file a foreclosure case in court, you will be issued a summons. When it happens, be sure to appear so you can present your case. Otherwise, the lender may obtain an order of default. It means that the bank can get a judgment against you for foreclosure without having to go through court proceedings. In short, they can get a judgment without the need of proving that you are indeed in default.

As a homeowner, you should always file an answer to the lawsuit. When you receive the summons, make sure that you show up during the hearing on the matter. It will prevent the bank from requesting an order of default judgment. When you receive an order of default, you can initiate some legal actions to have the default judgment to vacate or dismiss it through timely and appropriate motions in court.

So, which wins in this “Defaults vs Judgments” contest? None. Both of them can seriously damage your score, if not settled right away. It’s either you pay your judgment debts and ask the lender to update your file that it is recorded, or you contest default and judgment entries that are incorrect or unverified so your credit score would increase abruptly. Contact Clean Credit if you need support. We are credit repair experts. Not only can we give specialist advice, but we can also remove defaults and judgments from your credit file.

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