How does wage garnishment affect your credit report?

One of the main concerns that people have when they are behind on loan payments or have past-due credit card balances is how the situation will affect their credit scores down the road. In some cases borrowers can see a way out or have already begun proactively pursuing a solution like a loan modification before they have fallen into default, and in that situation the process may not have a major impact on someone’s credit score. 

In other situations, borrowers may hope that their finances will improve and may not take steps in advance to prevent a default, in which case lenders can seek a remedy in court and obtain permission to garnish wages. 

Wage garnishment can be a painful process because it may focus funds on a past-due debt that would be better spent keeping up with current needs like housing. Lenders who are seeking to garnish someone’s pay must go to court and at that time the borrower has a opportunity to defend themselves and argue against the garnishment. If they are not successful, the lender will have the right to take a part of someone’s paycheck even before it reaches the person earning it.

The upside, however, is that once the debt is settled it will appear that way on a credit report. This means that although it was once past-due, future potential lenders or landlords will be able to see that it was eventually paid in full, so the negative impact could be mitigated by the fact that the debt was satisfied. And, as many people already know, satisfied debts will no longer appear on a credit report after seven years. 

Source: Fox Business, “Debt Lingers on Credit Report Even After Garnishment, Repayment,” Jane McNamara, May 31, 2013.