Does Wage Garnishment Affect Your Credit Score?

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Brian Davis pro

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Looking for some advice. Last year, I started a small massage therapy business and rented a salon suite, hoping to grow it into something sustainable. Unfortunately, it didn’t work out, I went through my savings pretty fast and eventually had to close up shop. That left me with about $12,500 in unpaid lease debt.

The building owner ended up suing me, I lost the case, and now the state of Michigan intercepts my income tax returns and applies them toward the debt. I’ve accepted that part, but my husband and I are planning to apply for a mortgage in February 2025 and I’m unsure how this situation could affect us.

Would this show up on my credit report as a collection or judgment? And how would it impact our debt-to-income ratio (DTI) when applying for the mortgage?
 
Yes wage garnishment can affect your credit, but not directly. The judgment itself shows up, which tanks your score. The garnishment is just how they collect. Lenders will see the judgment and that’ll be a big factor when you go mortgage shopping.
 
Oh man that sucks. I started a mobile nail business in 2020 that flopped too. Lease debt is brutal. Just know you're not alone life throws curveballs and you're still here trying to rebuild. That counts.
 
Judgments are public record and do show up in some credit checks though not on credit reports anymore post-2017 per Experian/Equifax rules. But lenders often pull LexisNexis or PACER data. So yes it might hurt you during underwriting even if it doesn’t hit your FICO.
 
Been there. My paycheck was garnished for an old utility bill. The judgment never hit my credit report, but the underwriter still asked about it because it showed up in a public records check. Had to explain everything and show payment plan receipts.
 
If you're planning to apply for a mortgage soon make sure to talk to a mortgage broker now. They can do a soft pull and let you know if the judgment or intercepted returns will be a red flag. Better to prep early than get rejected later.
 
Are we sure garnishments are off credit reports now? I swear I saw one on Credit Karma last year. Maybe it was miscategorized? Either way banks will find out especially for conventional loans.
 
DTI is more about monthly liabilities, so if the garnishment is ongoing, that could count against your DTI. If it’s just a tax refund intercept once a year, that might not affect DTI much. Lenders will care more about total unpaid debt.
 
Honestly you’ve handled a tough situation with maturity. Not everyone owns up to their debt and continues planning for the future. Give yourself credit (no pun intended).
 
court judgments won’t hit your FICO 8/9 anymore because of 2017 rule changes. But mortgage lenders use older models like FICO 2/4/5 which can still factor in public records. Old software big consequences
 
If my refund disappeared without warning, I’d assume it was aliens or DoorDash. Turns out it was garnishment. Yep.........the aliens were the state of Ohio
 
Was it a personal lease or signed under a business entity? If it’s under an LLC and you didn’t personally guarantee it that might change how it affects your credit. But sounds like they came after you personally.
 
Lenders don’t care why you defaulted. They care that you did. Even if it was a failed business, even if you’re paying it off those are red flags. Just being honest.
 
Still time to clean things up before February. Look into settling the remaining balance or negotiating a payment plan with documentation. A letter of explanation goes a long way with underwriters.
 
You’re right some 3rd party credit monitoring tools still show civil judgments but the big 3 don’t. Lenders use more advanced tools though so nothing really stays hidden
 
Think of your credit report like a resume. That judgment is a big ol' employment gap. Garnishment is like saying you took time off to find yourself. Mortgage lenders side eye both.
 
As someone who processes mortgage applications, yes, judgments are a problem. You’ll likely need to satisfy or settle it before closing. Sometimes they’ll make exceptions with big down payments, but don’t count on it.
 
Just curious.....why didn’t the lease have an early termination clause? $12.5k sounds like a whole year of rent. That building owner went for blood.
 
Judgments can live for years sometimes up to 10–20 depending on renewals. Even if not on your credit report, mortgage lenders check deeper databases. You're smart to get ahead of this before applying.
 
Legally speaking a garnishment is a remedy not the actual judgment. The judgment is the issue that lenders care about, not the collection method. But yes garnishments suck. Been there
 
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