Does Being Garnished Affect Your Credit?

Garnishment is a process creditors can use in certain circumstances to forcibly collect money you owe for part-due debts. It involves compelling your employer to withhold part of your earnings or your bank to freeze your account balances to pay toward a debt. Although a garnishment will not affect your credit by itself, several factors surrounding a wage or bank garnishment can damage creditworthiness.

Late Payment Reports

Creditors typically will not pursue garnishment immediately after you miss a debt payment. Instead, they use in-house collectors or a third-party collection agency to contact you in an effort to help bring your account current. However, if your account becomes more than 30 days delinquent, a creditor can report the delinquent status to credit bureaus. Past-due account reports can damage your credit score and may impair your ability to obtain future loans and credit cards.

Civil Judgment

Before a creditor can execute wage or bank account garnishment, it must typically file a lawsuit against you for the unpaid debt you owe. This often occurs only after the creditor has made repeated attempts to compel you to bring your account current. If you cannot successfully defend yourself against a lawsuit for unpaid debt -- for example, by providing the court proof that you have paid your account balance -- the court will enter a judgment against you. Civil judgments appear on your credit reports and can sharply reduce your credit score.

Indirect Effects

A wage or bank garnishment executed after a civil judgment can have indirect effects on your creditworthiness. Because you have little control over a judgment creditor's ability to take your wages or bank account balances, a garnishment can reduce the amount of money you have available to pay other creditors. This may cause you to fall behind on other debt obligations, leading to additional delinquency reports and possible legal action initiated by other creditors.

Avoiding Garnishment

Simple strategies can help you avoid garnishment and the effects that this practice can have on your credit. Contact creditors before your accounts become sufficiently delinquent to warrant delinquency reports or legal action. Your creditors may reduce your interest rates or allow you to postpone payments to help you bring your accounts current. If your creditors will not work with you, contact a credit counseling service. Credit counselors can negotiate with creditors on your behalf to establish more favorable repayment terms. Also, cut down on discretionary spending to free more of your income for debt repayment.