It’s only right to worry about your credit score. Good credit comes with perks such as lower interest rates on credit cards and loans, better chances for loan approval, more negotiating power on a new loan, approval for higher limits, and better insurance rates. More and more landlords are also using credit scores to screen tenants.
Under federal law, you’re entitled to a copy of your credit report once every 12 months. A whole year is a long time to wait to check how much your credit score has changed. It’s even scarier when you consider that once a creditor reports a new balance to credit bureaus, it only takes 30 days to appear on your credit report. Reasons why your credit score might suddenly drop include:
Because debt impacts your credit score, you’re probably wondering if being behind on your taxes also plays a role. Will an overdue tax debt affect your credit score? The short answer Is no. But before you celebrate, you should know that back taxes can affect your ability to get a loan, such as a mortgage.
The consequences of back taxes
A possible repercussion of having a tax liability amounting to $10,000 or more is a written tax lien. When you’re slapped with a tax lien, the IRS has a legal claim against your property. This is not to be confused with a tax levy, which is the actual seizure of your property. Tax liens have stopped appearing on credit reports since 2018. With the updated rules, you no longer have to worry about an unpaid tax lien appearing on your credit reports for up to 10 years and up to seven years even after you paid the lien.
However, the Notice of Federal Tax Lien is a document that the IRS files, making it a public record. And financial institutions, particularly creditors, can access these public records to discover that the government has a legal claim against your property. This matters because creditors aren’t likely to grant loans to people who have a history of failing to pay a debt. And a tax debt is a serious liability because you owe it to the federal government. Remember, creditors perform due diligence. They’re not just looking at your credit score. They’re assessing your overall financial position and creditworthiness. And part of the process will involve checking public records.
How can I stop a tax lien?
Paying your back taxes is the most obvious answer. Understandably, it’s not always a viable option. Offer in Compromise (OIC) and installment plans are some tax relief options to consider. You may even consider using a personal loan or credit card to pay off your tax debt. But will paying off debt with more debt be the right move? And again, approval of a loan will depend on your credit score and public records.
Contact us at 877-447-7529. We can help you find the right strategy to pay your back taxes
and avoid a tax lien that can hurt your chances of getting loan approval. We’re here to help Chicago taxpayers with their tax concerns and troubles.