In this guide to wage garnishment, it breaks down what it means to have your wages garnished, why it happens, and the amount that can be withheld for your pay. While these issues are the most pressing for those who experience wage garnishment, there is another, often longer-term concern that arises.
Your credit can be negatively impacted when wage garnishment takes place, potentially keeping you from getting new credit in the future. Here’s what happens to your credit if your wages are garnished, and your rights under the law.
Wage Garnishment and Credit
In most cases, a creditor that pursues wage garnishment as a last-ditch effort to collect on an owed debt does not report the garnishment itself to the credit agencies. Instead, the creditor will report to Equifax, Experian, and TransUnion that an account is in default or closed without payment. There is no indication that your wages have been garnished; however, the garnishment can and likely will show up on public records, which are accessible to anyone who searches for the information. These details can have a significant impact on your credit history and score.
There is an entire section of your credit report dedicated to public record entries, and wage garnishments fall squarely into this category. All new or potential creditors can see the details of the debt, but most importantly, the credit agencies use this information to calculate your credit score. While the impact of garnished wages vary depending on your current credit profile, most individuals see a drop between 100 and 150 points, per entry. Like other defaulted accounts, judgments against you for wage garnishment stay on your credit report for seven years.
Having a lowered credit score due to wage garnishment can prevent you from getting the things you need in the future. For instance, getting an affordable car loan, a new mortgage loan, credit card, or even a business loan can be impossible with a judgment listed on your credit report. If you are approved, the cost of borrowing may be much higher than you anticipated. Creditors want to know they are taking on an acceptable amount of risk when lending money or establishing new credit lines for individuals. With an indication of bad behavior in the past like a wage garnishment judgment, creditors are unlikely to look past this risk or accept it without financial consequences passed on to you.
Knowing Your Rights
Even though a wage garnishment creates a negative entry on your credit report, and in many cases, drastically impacts your financial life, you still have rights as a consumer. Under the Consumer Credit Protection Act, you should be aware of the following requirements:
- You have to be notified of the wage garnishment before it can take effect
- You can file a dispute if the notice is inaccurate or the debt is not owed
- Both social security and veteran benefits are exempt from wage garnishment
- Your employer cannot fire you because you have a wage garnishment
- You have the right to challenge a judgment if it was made in error, or if the garnishment will create a financial hardship
Final Thoughts on the Affect of a Wage Garnishment on Your Credit Score
When a creditor garnishes your wages as a last resort for debt collection, you are likely to experience some far-reaching consequences, specifically impacting your income, credit score and history. Garnished wages are a matter of public record, which means anyone who searches for these details, including credit reporting agencies, can see a judgment against you. However, the negative credit impacts do not mean you lose your consumer rights.
Know that wage garnishment requires legal notification in writing, and that you can dispute the judgment if it is inaccurate or the debt is no longer owed. In an upcoming article we’ll break down the steps to take when a wage garnishment happens, and how you can get through the process damaging your credit or financial life further.
