A mechanic’s lien can affect your credit if it appears on your credit report. However, it is not necessarily the case that the lien will be picked up by a credit reporting agency and disclosed in your credit report. Understanding how the lien can affect your credit requires an understanding of mechanic’s liens and how they work.
What Is A Mechanic’s Lien And How Do They Work?
A mechanic’s lien is a notice that someone has asserted a legal claim against your property if you fail to pay a debt for contracted services. For example, if you hire a contractor to do some remodeling work on your home and you fail to pay the amounts due, the contractor can place a lien on your home. The lien is filed in the property records of the county where the property is located.
Once the mechanic’s lien is filed, it remains on the property records until you take steps to deal with it. You will not be able to close on a sale of the property until the lien is resolved. One way to resolve the lien is to pay the amounts owed, and the person or company who placed the lien must then remove it.
Another option is to get a lien bond from an insurance company that covers the amount of the lien until the matter is resolved. Getting a lien bond will allow you to have the lien removed immediately, and it gives you time to negotiate a resolution to the underlying debt. If you want to dispute your legal obligation to pay the debt, you can take the matter to court to have it resolved there.
Depending on the amounts involved, the contractor may not want to wait until you sell the property to collect the amount you owe. The contractor may opt to sue you to collect the outstanding debt. In that case, the contractor may seek to have attorney’s fees, court costs, and interest added on top of the amount due. If the court enters a judgment against you, the judgment becomes your legal obligation to pay the amount in the judgment order.
How Does The Mechanic’s Lien Affect Your Credit?
The mere act of filing the lien likely will not appear immediately on your credit report. How quickly the lien appears on your credit report if at all, depends on how your county reports them or whether a credit reporting agency picks it up.
A mechanic’s lien can affect your credit adversely in a number of ways:
Remains on Your Credit Report for Many Years
A lien of any kind, including a mechanic’s lien, reflects your payment history. Your payment history makes up about 35% of your credit score. Therefore, any debt that remains unpaid for a long enough time that results in a lien against your property can have a substantial effect on your credit.
Even if you pay the lien off, it can remain on your credit report for up to seven years after it was originally filed. An unpaid lien can stay on your credit report for up to ten years after it was originally filed.
Note that for a mechanic’s lien to be included in your credit report and affect your credit, it has to contain minimum identifying information required by the major credit reporting agencies. Equifax, Experian, and TransUnion require the lien include your Social Security Number or date of birth.
The reason for this is because many public lien records were not being properly verified or updated, leading to numerous errors and causing many consumer disputes. That said, you should not rely on the hope of an improperly filed lien to avoid a negative impact on your credit.
Once the lien is reduced to a judgment against you and recorded against your property, the judgment will be a negative entry on your credit report. Whether paid or unpaid, a judgment is likely to remain on your credit report for up to seven years from the date it was filed by the court.
It Will Be Harder and More Expensive to Get Credit
When you have a lien or judgment on your credit report, you will likely find it more difficult to get a loan. Even if you are able to find a lender willing to give you a loan, you will have to pay higher costs and more interest to offset the risk that the lender believes the loan to you will involve.
How You Can Remedy Poor Credit Due To Mechanic’s Lien
The best way to improve your credit is to develop a pattern of paying your bills on time. With discipline, in time your credit will begin to improve.
The liens and any other negative information will matter less and less, and your score will gradually recover. Your goal is to improve your score by having positive information on your credit report that is more recent than past negative information.
Get Help With Liens From The Experts at Mathis Title
Get help with clearing the title to your property and resolving any outstanding liens right away. Contact the experts at Mathis Title for more information about how to clear your title of liens. They can answer your questions and help your property sale go smoothly.