At Financial Canadian, we often receive questions about how civil judgments affect credit reports. Many Canadians wonder: do civil judgments show up on credit reports?
The answer is yes, and understanding their impact is crucial for managing your financial health. In this post, we’ll explore what civil judgments are, how they affect your credit, and what you can do to address them.
What Is a Civil Judgment?
A civil judgment is a court decision that determines the outcome of a lawsuit between two parties. It typically results in a monetary award given to the plaintiff when they win a case against a defendant. These judgments can arise from various situations, such as unpaid debts, breach of contract, or personal injury claims.
Types of Civil Judgments
Civil judgments come in different forms:
- Default judgments: These occur when the defendant fails to respond to a lawsuit or appear in court.
- Consent judgments: These happen when both parties agree to settle the case without a trial.
- Summary judgments: Courts issue these when the facts of the case are clear and undisputed.
In Canada, small claims court judgments are common for disputes involving amounts up to $35,000 (depending on the province). These cases often involve consumer debts, property damage, or breach of contract.
Recording of Civil Judgments
When a court issues a civil judgment, it becomes a matter of public record. The court clerk enters the judgment into the court’s database, which credit bureaus and other interested parties can access.
In Canada, each province has its own system for recording judgments. For example:
- Ontario: You can search for civil court cases through the Ministry of the Attorney General’s website.
- British Columbia: The province offers a similar service through Court Services Online.
Credit bureaus regularly collect this information to update credit reports. However, it’s important to note that as of 2023, Equifax and TransUnion in Canada have largely stopped including civil judgments on credit reports due to concerns about accuracy and fairness.
Impact on Credit and Lending
Judgments don’t appear on your credit report and don’t affect your credit score. But judgments may impact your ability to qualify for credit.
We recommend that you regularly check both your credit report and public records to ensure you’re aware of any judgments against you. This proactive approach can help you address any issues before they significantly impact your financial health.
As we move forward, let’s examine how these judgments specifically affect your credit report and overall financial standing.
Civil Judgments and Credit Reports: Recent Changes
Removal of Civil Judgments from Credit Reports
As of 2023, Equifax and TransUnion, the two major credit bureaus in Canada, have stopped including civil judgments on credit reports. This decision stems from concerns about accuracy and fairness in reporting. Consequently, civil judgments that were previously reported have been removed from credit files.
Impact on Credit Scores
The absence of civil judgments on credit reports means they no longer directly affect credit scores. This change can lead to improved credit scores for individuals who previously had judgments on their reports. However, it’s important to understand that while judgments don’t impact credit scores, they remain public records that lenders can access through other means.
Lender Considerations Beyond Credit Reports
Despite the removal of civil judgments from credit reports, lenders may still consider this information when making credit decisions. Many financial institutions conduct separate public records searches as part of their risk assessment process. This means that even though a judgment won’t show up on your credit report, it could still influence a lender’s decision to approve your loan application.
A study by Eagle Alpha revealed that alternative data for credit scoring includes various non-traditional financial indicators such as rent payment histories and incomes from gig jobs. This underscores the importance of addressing civil judgments, even if they’re not visible on your credit report.
Proactive Steps for Consumers
We recommend that consumers take proactive steps to address any outstanding judgments. Paying off judgments and obtaining a satisfaction of judgment can improve your overall financial standing, even if it doesn’t directly impact your credit score.
Maintaining a Strong Credit Profile
While civil judgments no longer affect your credit report, maintaining a strong credit profile remains essential. Try to pay bills on time, keep credit utilization low, and review your credit report regularly for accuracy. These actions will help ensure you’re in the best position when applying for credit, regardless of past judgments.
The removal of civil judgments from credit reports marks a significant shift in credit reporting practices. However, it’s clear that judgments can still play a role in lending decisions. Let’s explore how you can address civil judgments and improve your overall financial health.
Tackling Civil Judgments Head-On
Pay Off the Judgment
The most direct approach to address a civil judgment is to pay it off. Contact the creditor or their attorney to negotiate a payment plan or settlement. Creditors often accept a lump sum payment that’s less than the full amount owed. Although the average settlement amounts to 50.7% of what you originally owed, this number can vary depending on whether your debts are still with the original creditor or have been sold to a collection agency.
After payment, obtain a “Satisfaction of Judgment” from the court. This document proves you’ve fulfilled your obligation. It won’t remove the judgment from public records, but it shows potential lenders that you’ve resolved the issue.
Challenge Inaccurate Judgments
If you believe a judgment against you is inaccurate, you have the right to dispute it. Start by obtaining court records related to the judgment. Review these documents carefully for any errors in the amount owed, your personal information, or the case details.
If you find inaccuracies, file a motion with the court to vacate or set aside the judgment. This process can be complex, so consider seeking legal advice. The Canadian Bar Association offers a directory of lawyers specializing in civil litigation who can assist you.
Explore Removal Options
In some cases, you may remove a judgment from public records:
- Vacate the judgment: This can be done for reasons such as errors in critical and undisputed facts or procedural mistakes. If successful, it erases the judgment as if it never existed.
- Seek expungement: Some provinces allow for the expungement of certain civil judgments after a specific period. For instance, in Ontario, you can apply to remove a judgment from the court record seven years after its issuance if you’ve paid it in full.
- Consider bankruptcy: While not ideal, filing for bankruptcy can discharge certain judgments. However, this should be your last resort due to its long-lasting impact on your financial life.
Take Prompt Action
Address civil judgments as soon as possible. The faster you tackle these issues, the quicker you can move towards a healthier financial future.
Seek Professional Advice
If you find the process of dealing with civil judgments overwhelming, consider seeking professional help. Financial advisors or legal professionals can provide guidance tailored to your specific situation. They can help you understand your options and develop a strategy to address the judgment effectively.
Final Thoughts
Civil judgments no longer show up on credit reports or affect credit scores directly. However, lenders can still access judgment information through public records, which may influence loan approvals and terms. You should address civil judgments promptly to maintain a strong financial position and demonstrate responsibility.
To improve your credit after a judgment, you should pay bills on time, keep credit utilization low, and review your credit report regularly for accuracy. These actions will strengthen your overall credit profile and offset potential negative effects from past judgments (even if they don’t appear on your credit report).
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