Tax Lien: What Is It and How Does It Affect My Credit?

Tax Lien: What Is It and How Does It Affect My Credit?

Your credit report might contain more information than you think. Other than the details such as hard inquiries, credit accounts, and personal information, your credit report might include derogatory marks like bankruptcies and tax liens.

The reason why tax liens are included in a credit report is because if you do not pay taxes, it might suggest to the creditors that you will also have trouble paying bills. Tax liens could have a negative effect on your credit score, so it is something that you should address as soon as possible.

Tax Lien – An Overview

Tax liens are a legal claim of a local, state or federal government against any and every asset of a taxpayer who failed to pay tax debts. If you have failed to pay federal tax debts, IRS may place tax liens on your property. IRS basically files a public document to inform the creditors that the government has legal rights to your property.

It’s bad news for you. In fact, its implications may be far-reaching. For instance, if you have federal tax liens on your home, it means that you will need to satisfy liens before you could complete a sale or refinance. A good way to eliminate tax liens is simple and you only need to pay your tax debts.

Tax Lien – How Does It Impact Your Credit?

Typically, even if paid tax liens are better than the ones left unpaid, both actually have the potential to affect your credit negatively. The impact on scores will vary on some factors such as the tax lien’s age, credit scoring model, and some details regarding tax liens.

Generally, the older the debt and the smaller amount owed, the lesser tax liens will impact the scores. Yet, although the impact on your credit scores is not big, tax liens might affect your credit in some ways. Lenders may review credit reports and see tax lien before approving applications, so it could inhibit one’s ability to be qualified for financing. Several mortgage lenders would need you to satisfy liens before closing mortgage.

How Long Tax Liens Stay on Credit Reports?

Unpaid tax liens will usually remain on credit reports for ten years from the day it was filed. When tax liens have been paid, it’ll remain on credit report for 7 years from the day of payment. If paid liens are still on your credit report, ensure that they are listed as paid.


To avoid tax liens, you should pay the full amount of tax when demanded. If it is not possible, you might be eligible to consider state or federal programs to pay off the tax bills in the long run while avoiding tax liens. Eliminating tax liens from credit reports might not result in immediate or big improvement to your credit score. If you have some derogatory marks that drag down your credit scores, you would want to address them as well. To see huge improvements to your credit, you might want to add positive, new information to your credit report. It can be done through practicing healthy financial habits like keeping your credit account balance low and making payments on time.

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