When you have to file your taxes, you get so caught up by the stress that you might forget about other relevant financial information, like your credit score. It might be the last thing on your mind, but if you want to take out a loan in the future, you should know – taxes affect your credit score.
In some cases, how and when you pay your taxes, if you owe or plan on owing money to the IRS can all have an impact on credit. So before you go to a bank, take care of your taxes first. Here’s how a good or bad tax history can affect your credit score.
If you don’t pay taxes on time, it can impact your credit score. However, paying taxes on time has a positive effect like paying your mortgage or credit card bill.
So, if you file this year’s taxes, but are unable to make the full payment, it won’t immediately lower your credit score. The problem will come up when you start being consistently late on payments to the IRS.
Tax debt can have a significant influence on your credit score. The amount of debt you have collected at the IRS is a significant factor that can land you a Tax Lien. It gives the government a legal right to seize your property to compensate for the debt.
However, the IRS only issues tax liens if you owe an objectively high amount of money or you have made no efforts to repay the tax debt. But if it happens, resolve the problem as soon as possible.
Keep in mind that seizable tax debt can become publicly available information. Banks will do background checks with the IRS when you request a loan, and if they find out about your debt, they will undoubtedly lower your credit score. So, it’s best you pay off your debt before asking for a loan.
There are easy ways to iron out tax debts. One of them is working with the IRS to find a payment plan for your tax debt. You can always submit a 120-day short-term agreement which requires you to pay it in full inside the timeframe.
However, the better option is to check if you qualify for an installment agreement. It allows you to repay the owed debt over more extended periods of time. The IRS will not report it as an issue that can affect your credit.
And if you want to get the best deal, it’s always to request tax solution services from professionals to work with the IRS on your behalf.
Finally, the IRS allows you to make taxes using different payment methods. The government permits you to pay with cash, bank account transfers, debit or credit cards.
If you use a credit card to pay taxes, it can help you increase your credit score depending on your balance and credit card payments. But when you’re looking to take out a loan, this might be the perfect opportunity to demonstrate value to the bank.
It’s never easy dealing with the IRS, especially when dealing with something so important as your credit score. But it doesn’t have to be.
Get professional help with your taxes today. Contact us at Golden Tax Relief and let us help you understand your rights as a taxpayer.