A Mechanic's Lien is a powerful collection tool for those who have completed work on a construction project but have not been paid for their efforts, materials, services, and/or labor. If you are in this situation, you should send a preliminary notice or intent to lien within a specific period required by your state.
Once you have done this, you will be able to file your lien. When you place a lien on a property, the sale of that property cannot go through until the issue with the lien is resolved as the title of the property will be clouded.
Does a Mechanics Lien Affect Credit?
As of 2018, Mechanics liens have not been included in the credit reports maintained by the three major consumer credit bureaus (Experian, Equifax, and TransUnion). Currently, the only public records listed in credit reports are bankruptcies. So, the answer is No. A Mechanics Lien would not affect your credit. However, as a best business practice, it is advisable to resolve the lien claim so the property isn’t foreclosed on.
What can affect your Credit?
The below actions can affect your credit score negatively.
- Missing payments - Credit score is impacted by payment history, and have missed d or late payments can have a bad effect. (Experian)
- Using too much available credit - Credit utilization is the second most important factor affecting your credit scores after payment history. It's represented by your credit utilization ratio, calculated by dividing the total revolving credit you currently use by the total of all your revolving credit limits. A high ratio (above 30%) suggests to creditors that you over-extend yourself financially. (Experian)
- Applying for a lot of credit within a short while - Every time a lender requires your credit reports for a lending decision, your credit file records a hard enquiry, which stays in your file for a couple of years and can make your score dip for a short while. Lenders depend on the number of hard enquiries to determine how much new credit you are requesting. An excess of enquiries within a short while can mean you are in poor financial health or are not getting new credit. (Equifax)
- Defaulting on accounts - Foreclosure, repossession, settled accounts, bankruptcy and charge-offs can show up on your credit report as negative account information. All these can hurt your credit score for years. (Equifax)
What are the best ways to improve your Credit?
Once you understand why your score is poor, boosting your credit score could be simple. Time and effort may be required as well as growing sensible habits that can increase your score in the long run.
Below are the top 5 ways to boost your credit score.
- Be on time when it comes to paying bills - Payment history is a major factor in determining your credit score, so pay your bills on time to improve your credit.
- Pay down debt - Bring your credit card balances to bring down your credit utilization ratio and improve your credit score.
- Fulfill outstanding payments - Do not let payments go past the due date. Whether 30, 60, or 90 days late, overdue payment information impacts your credit score negatively.
- Look for Inaccuracies - Sometimes, the wrong data in your credit file can cause poor scores. Do not ignore anything that is out of place; get it investigated as soon as possible and dispute it if found inaccurate.
- Make fewer new credit requests - Bringing down the number of times you ask for new credit will ensure fewer hard inquiries in your credit file. Such inquiries stay for a couple of years, and the difference to make to your scores decreases over time.
So, now that you know a Mechanics Lien does not reflect on your credit, it can have consequences if you are looking at selling your property. As a property owner, you must remove the Mechanics Lien to have a clear title.