Can a Tax Lien Hurt My Credit?

Perhaps you’ve heard of a tax lien but don’t understand exactly what it means. Or you requested a free credit report and noticed this term on the report. A tax Professional can help answer these crucial questions.

Tax liens are serious allegations and can have a negative impact on your credit rating. The derogatory mark on a credit report essentially makes the claim that you have neglected or failed to pay tax debt in the past.

Negative Impacts of a Tax Lien

When the U.S. government produces a tax lien they have a legal claim against your personal property for failure to resolve tax debt. Getting professional help for a tax lien that you consider is unjust or downright incorrect is important because tax liens are complicated and vary in several different forms.

Tax liens can occur at the federal, state or local level and come with several different personal and legal implications. Furthermore, tax liens usually show up on public records, and consequently impact your credit rating negatively.

How much of an impact does it have on credit rating?

Make no mistake, if a tax lien shows up on a credit report it will have some negative impact, but exactly how much it radicalizes your score is dependent on a number of aspects.

The good news is the major financial institutions like Equifax and TransUnion have been taking measures of late to eliminate many tax liens because several of them have been reported inaccurately. Tax liens are no longer allowed on credit reports if they don’t include consumer information like a social security number or date of birth, according to the new standards.

However, that doesn’t mean all tax liens are harmless or will get overlooked, so enlisting tax help from a professional service can assist as you examine your particular situation. Unlike a lot of tax related issues, tax liens are not black and white. The implications really do vary on a case-by-case basis.

Even if more liens are being wiped off the book because of inaccuracy, a tax lien is still considered a “severe derogatory entry” from the point of view of the major credit reporting agencies. It is held with the same contempt as bankruptcy, judgments, collections, charge-offs and repossessions—all very serious allegations that can eliminate any confidence potential lenders will have in providing you with additional credit.

How do you remove a tax lien from a credit report?

The quickest way to remove a tax lien is to pay off the tax debt in full, which is pretty obvious advice. If you can afford to squash the debt any time soon, such as in the next couple of years, than you should do so. A tax lien can be removed and credit rating improved in as little as 30 days following a tax settlement according to the IRS.

Unfortunately, it is no guarantee as a tax lien can remain on a credit report for up to seven years after it is released. Unpaid liens can remain for up to 10 years from the original filing.

Along with the blemish on your report, credit ratings can take a plunge in worst case scenarios. FICO does not specify an exact deduction on credit scores for liens, but since it’s viewed in the same regard as bankruptcy and foreclosures, it can drastically lower a score. For example, bankruptcy can plummet a credit score as much as 240 points, and take as many as ten years to recover.

If you believe a tax lien on your report is in error you should consult a professional that specializes in tax resolution for information on filing a dispute. You will need documents and other forms of proof to make a valid case, and experts can assist as you gather this kind of information.

Tax experts can also assist with a dispute where a tax lien has been paid, but is still showing on a credit report. The individual can either dispute with the credit bureau or IRS, or both. Also known as withdrawals, consult an expert at Levy & Associates for more information at www.levytaxhelp.com.