April 15 is a date that has significance to everyone who is old enough and required to pay taxes. Paying taxes is one of the few things in life that we absolutely have to do. If you don’t pay your taxes on time, you’ll be subject to penalties and late fees. However, this is minimal compared to what else may happen to you if the taxes go unpaid. You may have a tax lien put on your money or property. Learn about how tax liens work and how they affect your credit score.
What is a Tax Lien & What Does it Affect?
A tax lien is a lien that is imposed by the state or federal government to secure property or your banking account if you don’t pay your income taxes or real estate taxes. If a tax lien is attached to your banking account, it can affect your ability to access your accounts.
Your accounts will be “frozen” to you until the lien is removed. If the tax lien is attached to your property, it affects your ability to sell your property. It also negatively affects your credit scores and, in most cases, will prevent you from getting any credit.
How Does a Tax Lien Affect Credit Scores?
Tax Liens not only affect credit scores but affect them in an extremely negative way, almost like a bankruptcy or foreclosure. In fact, there isn’t anything that affects your credit scores as seriously as having a tax lien on your credit report.
Another thing that makes tax liens so hard on your credit is that it can take years to get it off your credit. Paid tax liens can take seven years and unpaid tax liens take fifteen years to be off your credit report, according to Experian.com.
How Can I Get a Tax Lien Off Of My Credit Report?
The best way to get a tax lien offer your credit report is to pay the taxes. However, even though the taxes are paid, the lien isn’t going to disappear on its own. Even though it was the IRS you may have owed money to, it was not the IRS that attached the lien. Contact the credit reporting agency and once you show proof that the taxes are paid, the tax lien will come off your report eventually.
What Else Affects My Credit Scores?
There are several other things that affect your credit scores. Listed below are the five categories that are used to determine credit scores as well as percent each is in importance.
- Payment history – 35%
- Amount owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Type of credit being used – 10%
It’s very important to pay the IRS when your taxes are due. The consequences of not paying taxes can haunt you (and your credit score) for years to come.
Featured Image Source: DepositPhotos © alexskopje