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Just a few short years ago, public records such as judgements and tax liens could show up on your credit report. Even worse, both of them could cause your credit score to plumett.
Thanks to recent efforts to minimize reporting errors, certain public records no longer show up on your credit report. While that’s good news, you’re not out of the woods just yet.
For starters, policies can change in an instant. While public records like tax liens are no longer appearing on credit reports, that doesn’t mean it can’t be reversed tomorrow.
Tax liens are one of the worst things that can hit your credit report. Due to federal law, if you have unpaid tax liens on your credit report, they can continue to show forever.
Once a tax lien is paid in full and released, it must be removed within 7 years of the date it was filed.
So, What Is A Tax Lien?
If you don’t know what a tax lien is, this is a great opportunity to learn what it is. A tax lien refers to the “right to keep possession of property belonging to someone else until that debt is discharged.
A tax lien can be filed by any body of government, such as the IRS, state, city, even the country itself. A tax lien is an attempt to force you to pay your tax obligations, aka “unpaid taxes.”
These government bodies are protected legally too, giving them the right to seize personal property if you should not pay your tax debts. The IRS sends out what is called a “Notice of Federal Tax Lien,” while the others use different notifications.
Tax liens are still public records, so anyone can view them at any time. The major credit bureaus use to actively look for tax liens and would apply them to your credit reports.
Today, thankfully for many, that’s not the case.
Can A Tax Lien Affect My Credit?
For decades, tax liens and other public records would appear on your credit reports. Even worse, these types of records would seriously hurt your credit scores.
If a lender seen these, you would have a much harder time getting the credit you wanted, especially for mortgages and vehicles.
As of today, May 2019, that is no longer the case. While most public records are no longer on credit reports, some of them still are.
How To Address A Tax Lien
Today, if you have a tax lien on your credit, it’s not going to hurt you. That’s the good news.
The bad news, things can change tomorrow. If you have a tax lien, the best thing you can do is pay it.
If you’re dealing with tax debt, you do have a few options.
One of those public records is bankruptcy, which can stay on your credit report for 7-10 years, the amount of time is dependent on the type of bankruptcy you filed.
Now that tax liens are rare to show on credit reports, they don’t have the big negative impact on credit scores they once had.
Some of you may be wondering why this decision was made. Most credit experts point back to a 2015 settlement between Experian, Equifax and Transunion, along with 31 state attorney generals.
The settlement led to an agreement that’s called the National Consumer Assistance Plan or (NCAP), which triggered a variety of policy updates designed to bolster the accuracy of the bureaus’ credit reporting practices.
In the immediate wake of these updates, certain judgments and tax liens still remained on credit reports. But over time, policies were updated further, and by the end of April 2018, all judgments and tax liens were eliminated from personal credit reports.
Now, you may be reading this because you have a tax lien on your credit report. Tax liens can still show on your credit report, it’s not against the law.
If you have a tax lien on your credit report, you’ll need to file a dispute and point them back to the NCAP that passed in April 2018.
If you’re dealing with the IRS, they are usually willing to help if you’re showing you’re trying. One option they give you is an installment plan.
If you owe less than $25,000, you can apply for an installment plan on the IRS official website. If you owe more than $25,000, you’ll have to call an agent.
An installment plan will give you the chance to make monthly payments to pay off your tax debt.
If you can afford to pay a lump sum, you may be able to compromise on your debt. You’ll need to talk to them personally to set up an agreement.
If you’re already paying on your tax debt, you can always file for an extension. This is a great option for those of you that have a small tax debt to pay.
You may be able to arrange a 3-6 month extension so you can pay the debt in full.
Dealing With Debt
If you have tax liens that can’t be paid, it’s likely you have other debts that you’re struggling with. While there’s a never a one-size fits all solution for debt, we’re always here to help you in any way that we can.
The Credit Shout platform has hundreds of resources that cover a wide range of topics, from debt and credit to personal loans and finance.
We have a massive library of resources where you can find information on any topic you wish, especially when it comes to debt.
Debt repayment is a great option when you have tax debt, so make sure you consider that. As you’re able to take care of your debt, your credit scores will improve.
This is going to give you lower APRs, lower interest and lower payments. Take it one step at a time.