How does a tax lien affect your credit score?
Key takeaways
- Tax liens used to be included on your credit reports, even if you paid them off.
- Today, however, they’re no longer included — but they are still part of the public record and can be seen by potential lenders, landlords and employers.
- To keep errors from bringing down your credit score, it’s important to check your credit report from each of the three major credit bureaus routinely.
Previously, a tax lien on your credit report could do significant damage to your credit score. All of that changed in 2017 when the credit bureaus began re-evaluating the way they reported civil judgments and civil public records. By April 2018, the three credit bureaus decided to remove all tax liens from credit reports.
How does a tax lien affect your credit? At this point, a tax lien should have no effect on your credit history or credit score. This is good news if you are currently dealing with an unpaid tax lien, or if you are wondering how to get a released tax lien off your credit report.
Even though a tax lien does not hurt your credit score, there are plenty of other downsides to having a tax lien in place — and a tax lien can create problems in your financial life even if it’s not listed on your credit report. For that reason, you should pay your tax liabilities in full and strive to avoid liens whenever possible. Understanding how a tax lien works and how to check your credit score for errant tax liens and other marks can help you keep your credit score high and avoid these issues.
What is a tax lien?
A tax lien is a formal, public notice from the government stating that you have outstanding tax debt. A tax lien is also a legal warning that your assets may be claimed and your wages garnished if your debt remains unpaid.
While many people occasionally fall behind on their tax obligations, the IRS generally does not issue a tax lien until the unpaid taxes lapse to the point where collection actions must be taken. If you are concerned about not being able to file your taxes on time or not being able to pay the taxes you owe, there are many free IRS resources available to help you solve your problem. You may also want to contact a Certified Public Accountant (CPA) or tax professional for assistance. It may be possible to request a tax extension or set up a payment plan, both of which are preferable to ignoring your tax debt and potentially setting yourself up for a tax lien.
How does a tax lien affect your credit?
Does a tax lien hurt your credit score? No. Since the three major credit bureaus no longer include tax liens on your credit reports, a tax lien is no longer able to affect your credit.
This includes all kinds of tax liens, by the way. Does a property tax lien affect your credit score? No — and neither does an income tax lien. Federal and state tax liens no longer appear on your credit report and neither affect your credit score.
That said, tax liens are considered public records, and employers, landlords and lenders may still decide to review these records and use the information to determine whether to offer you a job, an apartment or a loan. So while your credit score might not be impacted by a tax lien when you go to apply for a new credit card or personal loan, your lender can still take it into consideration. People who have unpaid taxes on their record may be viewed more negatively than people who are up to date on their tax obligations, which is why it’s a good idea to pay off any outstanding tax liens as quickly as possible.
How long are tax liens on your credit report?
The three credit bureaus began removing tax liens from credit reports in 2017, which means that any existing tax liens should no longer appear on your credit report. This goes for any tax liens filed prior to 2017, as well as any filed since then.
Previously, a tax lien was considered a derogatory mark on your credit. These liens could stay on your credit report for up to seven years if you paid them off, and a full 10 years if you didn’t pay them.
However, now that tax liens no longer affect your credit, you don’t have to worry about how long tax liens remain on your credit report.
How to correct errors on your credit report
If you’re wondering how to get released tax liens off your credit report, you need to be sure to report the error to the relevant credit bureau.
Experian, Equifax and TransUnion all offer easy methods of filing disputes online. In many cases, it will take just minutes to report that there is a tax lien on your credit report. The credit bureaus may take up to 30 days to address the dispute and correct any errors, although many credit report disputes are resolved much more quickly.
You can also dispute an error on your credit report by mail. This method is likely to take more time than filing a dispute online, but sending a dispute letter to the credit bureaus is another way to get tax liens off your credit report.
How to dispute a credit report error online:
How to dispute a credit report error by mail:
The bottom line
Tax liens do not show up on credit reports anymore, so they won’t affect your credit score, no matter the type of tax lien you might have. If you think one has shown up on your credit report erroneously, then you’ll need to contact the credit bureaus to get it removed.
Even if you aren’t concerned about tax liens affecting your credit score, it’s a good idea to review your credit report regularly and report any errors you find. Many people don’t realize how easy it is for mistakes to appear on credit reports — not to mention how often the credit bureaus fall behind on updating items like name or address changes. If you review your Equifax, Experian and TransUnion credit reports at least once per year, you’ll be better prepared to correct any errors and ensure your credit report is an accurate reflection of your credit history.
