Does an Eviction Mess Up Your Credit Score?
Understand the nuanced ways an eviction can impact your credit score and financial future, plus strategies for recovery.
An eviction is a legal process where a landlord removes a tenant from a rental property. While the eviction process itself does not directly appear on an individual’s credit report, the financial consequences associated with it can significantly impact credit standing.
How Eviction Information Appears on Credit Reports
An eviction filing, which is the legal action initiated by a landlord, does not show up on a consumer’s credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. These bureaus do not track eviction filings directly. However, financial obligations that lead to or result from an eviction can affect credit.
Unpaid rent or damages owed to a landlord are often sent to collection agencies. Once a debt is placed with a collection agency, it is reported to credit bureaus and appears as a collection account. This indicates a serious delinquency and can have a substantial negative effect on a credit score.
If a landlord obtains a court judgment against a tenant for unpaid rent or damages, this judgment can become a public record. While major credit bureaus generally stopped including most civil judgments on credit reports, some may still appear or be found through other means. Public records, if reported, are detrimental to credit scores.
Understanding the Impact on Your Credit Score
The presence of collection accounts or court judgments on a credit report can lead to a drop in credit scores, including FICO and VantageScore. Payment history is the most influential factor in credit scoring, accounting for 35% of a FICO Score and 40% of a VantageScore. A collection account can cause a substantial decrease, potentially lowering a score by 50 to 100 points or more, depending on the individual’s credit profile.
These negative marks, such as collection accounts and civil judgments, remain on a credit report for up to seven years from the date of the original delinquency. Even if the debt is paid, the negative entry stays on the report for seven years. Its impact on the score may lessen over time. Bankruptcies, if involved, can remain for up to 10 years.
The existence of these negative items can hinder future financial opportunities. Lenders view these entries as indicators of higher risk, making it more challenging to qualify for new loans such as mortgages, car loans, or personal loans. Credit card applications may be denied or approved with higher interest rates and less favorable terms. Future rental applications also become more difficult, as landlords conduct credit checks and tenant background screenings that may reveal collection accounts or past judgments.
Strategies for Managing Eviction-Related Credit Issues
Regularly obtaining and reviewing credit reports is a key step in addressing eviction-related credit issues. Individuals are entitled to a free annual credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) via AnnualCreditReport.com. Reviewing these reports helps identify collection accounts or judgments.
If information related to an eviction appears inaccurate or incomplete, dispute it with the relevant credit bureau. This can be done online, by phone, or by mail, with supporting documentation. The credit bureau is required to investigate the dispute within 30 days and correct or remove verified inaccuracies.
For legitimate debts, addressing collection accounts or judgments is important. While paying off a collection account does not immediately remove it from a credit report, a “paid” status is viewed more favorably by lenders. Some newer credit scoring models may disregard paid collection accounts. Negotiating a “pay for delete” with a collection agency, where the agency agrees to remove the entry in exchange for payment, is a possibility. However, it is not guaranteed and is generally discouraged by credit bureaus.
To offset negative impacts, building a positive credit history is important. This includes making all other payments on time, keeping credit card balances low, and utilizing secured credit cards. Secured credit cards require a cash deposit, which becomes the credit limit, and can help establish or rebuild credit history through responsible use and on-time payments if the issuer reports to the major credit bureaus.