Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; this is known as collateral. Through the use of collateral, creditors establish a priority interest in the asset used to back the loan or line of credit. If you default on your repayment obligation, the creditor can place a lien on your property. Liens come in a number of forms under three broad categories: consensual; statutory; and judgment. Consensual liens do not adversely affect your credit as long as repayment terms are satisfied. Statutory and judgment liens have a negative impact on your credit score and report, and they impact your ability to obtain financing in the future.

Consensual Liens

Consensual liens are those you consent to voluntarily, such as taking out a loan or line of credit. Residential mortgages, vehicles and business assets fall under the category of consensual liens. As long as you make payments on the financing in line with the credit agreement, you retain ownership and control over your property. Consensual liens are visible on your credit report, but they do not have a negative impact unless the collateral is taken back by the creditor due to nonpayment.

Statutory Liens

Mechanics' liens and tax liens fall under the category of statutory liens. A mechanic's lien is placed when a contractor or mechanic is not paid for work performed, and it represents a financial interest in the home, vehicle or business on which the work took place. A tax lien is placed by the government when income, estate or property taxes owed are not paid. Statutory liens can be detrimental to your credit as they stay listed for seven years.


As the most severe type of lien, judgments are the result of a court granting financial interest in your property to a creditor. Judgment liens are common when personal or business property is used to satisfy damages incurred that are not wholly covered by insurance, such as a car accident or liability claim. Judgments remain on your credit report for up to seven years.