What is a Tax Lien and How Does it Affect My Credit Score?
When taxes are not paid, the government can place a lien on a property or asset as payment. Different types of taxes that can be paid include income and property taxes.
Tax liens can have a major impact on individuals and businesses, hindering their ability to get loans, transfer property ownership, or access other financial resources.
Many people worry about the impact of tax liens on their credit scores. Understanding the effects of a tax lien on your credit score is essential, as it is important for obtaining loans, credits cards, mortgages, and other financial products.
In the past, a tax lien could greatly lower your credit score if it appeared on your credit report.
However, in 2017 the credit bureaus reevaluated their procedure for reporting civil judgments and public records, causing a major change. In April 2018, the three credit reporting agencies agreed to remove all tax liens from their reports.
Therefore, a tax lien should not impact your credit history or credit score at this stage.
But even if a tax lien does not impact your credit score, it still presents many challenges and can have negative impacts on your financial wellbeing.
Does an IRS Tax Lien Show on Your Credit Report?
As previously mentioned, the credit bureaus began removing tax liens from credit reports in 2017. Therefore, any existing tax liens should no longer be visible on your credit report.
This goes for any tax liens filed prior to 2017, as well as any filed since then. No matter if it is a state or federal tax lien, such as a property tax lien or income tax lien, they are no longer included on your credit report and do not influence your credit score.
Even if a tax lien does not appear on your credit report, it is still an accessible public record that should be noted.
Government agencies, including the IRS, can put a lien on your assets, which may limit your ability to sell or refinance them. Additionally, a tax lien can be recorded in county or state records, which can be accessed by lenders, landlords, and other parties.
To determine if you have a tax lien on your credit report, you can get a free copy from one of the three major credit bureaus (Experian, Equifax, or TransUnion).
If you discover a tax lien on your credit report, contact the credit bureau to challenge the inaccuracy.
Credit bureaus have 30 days to investigate and fix any inaccuracies found in credit reports, though most issues are resolved sooner.
Can I Get a Tax Lien Removed from My Credit Report?
As tax liens will no longer show up on credit reports, there is no need to worry about how to remove them from your credit history. However, it’s important to be aware that even though a tax lien may not show up on your credit report, it doesn’t mean it’s not a public record.
The IRS and other government organizations can place a lien on your possessions and real estate, making it hard to sell or refinance them.
You can challenge a tax lien on your credit report that you believe to be incorrect by filing a dispute with the credit bureau. It’s easy to file a dispute with Experian, Equifax, or TransUnion through their online portals. In most cases, you can report a tax lien on your credit report in only a few minutes.
Credit bureaus must address any disputes and fix errors within a time frame of 30 days; however, often the resolution takes place at an even faster rate.
Disputes about errors on your credit report can be sent by mail, which is what we typically suggest for better record keeping/organization. Writing a dispute letter to the credit bureaus is another way to remove tax liens from your credit report, though it might take longer than filing a dispute online.
It’s important to be aware that paying off a tax lien does not remove it from your credit history. The lien will stay on your credit report until the credit bureau removes it after it has been filed.
If you cannot cover the taxes owed, you may be able to bargain with the IRS for an installment plan or an “offer in compromise”. This could reduce your tax debt and help to prevent a lien.
Addressing tax liens promptly is vital to avoiding additional complications, and to limit the effect on your credit rating and financial wellbeing.
Final Thoughts
Tax liens no longer negatively impact your credit score, as credit bureaus do not include them on credit reports anymore. In 2017, the three main credit bureaus made a change which meant that any tax liens filed before or after that date would no longer be visible on one’s credit report.
All types of tax liens, including property and income taxes from both the federal and state level, no longer show up in your credit report, nor do they have an impact on your credit score.
It’s important to be aware that a tax lien can still be visible to the public, and this can complicate attempts to sell or refinance assets and property.
A tax lien can also be registered in county or state databases, which can be seen by lenders, landlords and other interested parties.
It is essential to promptly fulfill your tax obligations and try to prevent any liens from being placed, in addition to dealing with any mistakes on your credit record quickly. If you suspect a tax lien reported on your credit report is inaccurate, you can contest it with the credit bureau.
If you’re not able to pay the taxes due, you can talk to the IRS to create a payment plan or compromise agreement that may decrease the amount owed and help you avoid a lien.
While not directly affecting your credit score, tax liens should be handled quickly to reduce the financial risks they pose and safeguard your creditworthiness.