Good credit is essential to your financial health. Maintaining consistent payments on your credit cards proves to lenders that you can manage your debts. Credit card judgments show that you are in financial trouble and hinder attempts to get further credit. While you will not be able to get a home equity loan with credit card judgments, you can find yourself with judgments after you get a home equity loan.
Credit Card Judgments
When you are issued a credit card, you must repay your purchases in monthly installments with interest. If you miss a monthly payment, the interest rate goes up and you are charged late fees. After 30 days of nonpayment, the delinquency is reported to the credit bureaus. After 90 days, the account is moved into collections. At this point, the company can seek a judgment against you for repayment of the debt.
Home Equity Loan
A home equity loan is a mortgage against an existing property. Equity is the difference between what you owe on a property and what the property is worth. Banks typically lend up to 80 percent of a home's value. So a home worth $100,000 will have $80,000 in equity minus any existing obligations. If you have a first mortgage with a balance of $50,000 against the property, you are left with $30,000 in equity.
Judgment Before a Home Equity
When you apply for a home equity loan, one of the first actions a bank takes is running your credit. Any credit card judgments are red flags. While the amount, the time frame and the explanation of the judgment all have bearing on the decision, getting approved is difficult.
Judgment After Home Equity
While a credit card judgment prior to a home equity makes it unlikely you will even get approved, a credit card judgment can easily come after a home equity. Since your home equity is another monthly debt, it can put a strain on your finances. If your credit card debt continues to grow after obtaining a home equity, you can find yourself unable to make the payments. If this goes on long enough, you can end up with judgments against you after closing on the home equity.
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