It seem that everything–from mortgages, to car loans and even some types of employment–is tied to your credit score. There’s no doubt you’ve heard about friends or complete strangers who couldn’t get the car, house, apartment, or job of their dreams because of a low credit score.
We also know that delinquent credit card debt and past due student loan payments can affect your credit, but what about past due taxes? Can they impact your credit score?
The short answer is “yes.”
If you owe past due taxes, and decide to pay them off with a high-limit credit card, your score could drop by as much as 100 points since you’ve reached the maximum credit limit for that card.
If you are paying your tax bill at the expense of your other debts (e.g. student loans, car loans, credit cards) your credit score will also drop since you neglected the other debts in favor of paying your tax debt.
Let’s suppose you owe $10,000 or more in taxes and you haven’t contacted the IRS to make payment arrangements. The IRS will impose a tax lien as a way to recover the money you owe.
The tax lien will appear on the “Public Records” section of your credit report, where it’s visible to lenders, employers and potential landlords. In addition, that one tax lien will cause your credit score to drop by 100 or more points….which could be just enough in some instances to impact your ability to qualify for any credit.
An open tax lien will remain on your credit report for up to seven years, and you’ll be stuck with higher interest rates or deposits on any loans or rental agreements you do manage to get.
What You Can Do
Don’t let your tax debt get to the point of having to sacrifice your other financial obligations in order to pay the IRS. Same goes for larger tax debt. Don’t let fear stop you from contacting the IRS to make payment arrangements. Reaching out to the IRS will put you back in control and will preserve your hard-earned credit score.
You will have the opportunity to apply for an IRS Installment Plan, which will allow you to pay off the tax debt over time.
However, if paying the tax debt will affect your ability to pay for basics such as rent, utilities, transportation and food, consulting a tax pro is your best option. He or she will assess your overall financial situation and will be able to advise you of programs that can help you to chip away at your tax debt with a payment that won’t leave you short of rent money.
Your tax advisor will also inform you of your rights in dealing with the IRS.
Regardless of your individual circumstances, tax debt has far-reaching consequences in terms of your credit rating and your ability to obtain credit in the future. You could be facing a tax lien if you owe $10,000 or more in unpaid taxes, especially if you haven’t contacted the IRS to make payment arrangements.
Don’t let tax debt ruin your good credit standing. Take steps today to settle your tax debt with the IRS. We have qualified tax pros on staff who can help. Just click the white “Start Chat” button on our website or give is a call. Don’t go it alone. We can help.