How Long Does a Tax Lien Stay on Your Credit Report?
When you are dealing with tax liens you may ask yourself how these influence credit scores and for how long the said records will be reported. When it comes to practicality this can assist you in making better decisions with your finances, as well as not shocking when it comes to your credit report maintenance.
The following used to be a powerful element, but changes in recent years have occurred: Tax liens. Here, you will learn the answer to the question of how long a tax lien can remain on your credit report, the changes in reporting that have been recently made, and ways to rebuild credit, even when a tax lien is present on your report.
What is a Tax Lien?
Tax lien is a legal right of the government to seize your property as a result of your inability to pay your taxes to the government. A tax lien can be filed by the federal government, state government or even local level government. A lien entitles the government to seize your property in the event that the particular debt still has not been paid, though it is not done instantaneously.
There are two types of tax liens:
- Unpaid Tax Liens: These remain on your credit report for a long time until whenever they get sorted out.
- Paid Tax Liens: This type of lien used to be reported on your credit report for several years, actually until the debt is cleared.
While tax liens used to be given a lot of weight in credit scoring models, shifts in reporting have changed how that influences what is reported on your credit score today.
Recent Changes to Tax Liens on Credit Reports
In the past, tax liens had a major impact on your credit report. They could stay on your credit report for up to seven years if paid and up to ten years if unpaid. However, the National Consumer Assistance Plan (NCAP), implemented by the three major credit reporting agencies (Equifax, Experian, and TransUnion), brought major changes.
Currently, the big three credit bureaus agreed in April 2018 to delete all tax liens from credit reports. What this implies therefore, is that if you have a tax lien that appeared in your credit report before this date, it must not appear again in your report and shouldn’t even be considered by lenders, in fixing your score.
These changes were undertaken together with other modifications aimed at increasing the reliability of credit reports and decreasing the financial expectation of consumers.
Do Tax Liens Still Impact My Credit Score?
Even though tax liens can be taken off your credit report, you will still experience certain repercussions resulting from this issue. For example, the IRS or your state government can still move to get their money back and this may involve coming to grab whatever you own. However, as concerns your credit score, tax liens do not have impact on the FICO or VantageScore as they used to.
However, while liens do not show up on the credit report anymore, they are not completely off limits for the lenders and creditors who may therefore figure out your lien through other records if you are applying for large funding such as mortgage or business financing. In such cases, you may, however, be required to clear the remaining lien before you are considered for credit.
How Long Does It Take to Resolve a Tax Lien?
The duration it will take to clear a tax lien varies with your financial status and how you undertake to clear the debt. Full payment is the best and quickest way to deal with a tax lien but if this cannot be done then the following solutions can be sought.
- Installment Agreements: This helps you to discharge the debt in equal and easily manageable installments over an agreed period.
- Offer in Compromise (OIC): This contract with the IRS lets you resolve your IRS tax debt for less than the total you owe, depending on your situation.
- Tax Lien Withdrawal: Following the payment of the debt you may fill for a discharge from the public records. A withdrawal is distinct from a release because the latter means that the IRS is not vying for your property with your creditors but the debt is paid in full.
Will Paying Off a Tax Lien Improve My Credit?
As you may be aware, tax liens are not reported by the three major credit bureaus which means that paying off a lien will not increase your score. Nevertheless, paying off the debts can give a positive result since it saves you from potential loss of property or your wages being garnished.
Even if a lien does not affect credit score it may do so indirectly depending on a case a person pays off the lien. For instance, a lender may search the public records and find out that a lien has been paid, then will be in a position to approve your credit application.
How to Rebuild Credit After a Tax Lien
Although tax liens do not appear on credit reports today, the rest of the credit obligations usually help to determine your creditworthiness and you may need to fix your credit if you have been in a bad credit cycle. Here are some tips to help you get back on track:
1. Pay Bills on Time
Payment history is by far the most critical aspect that defines your credit score. Ensure that all dues are paid as and when they are due including rent, electricity, water bills, and credit card balances.
2. Reduce Debt
If you owe money on credit cards or loans, carry forward as many dollars as you can manage to afford. Much like your credit utilization ratio can be detrimentally affected, so can your credit score.
3. Use Credit Responsibly
Applying for new credit cards is useful for credit repair: however, new accounts should be used wisely. Don’t carry high balances and do not take on too much new credit at the same time.
4. Monitor Your Credit
This is because credit reports can also be updated frequently and you should make a point of checking whether the information is accurate each time. If you find something erroneous then immediately dispute it with the credit bureaus.
What If a Lien Is Still on My Credit Report?
However, despite being reported to the CRAs, tax liens may still be reflected in your credit file when they shouldn’t be. If this occurs then swift action is needed in order to have the mistake rectified. Here’s what you can do:
- Get a Copy of Your Credit Report: The three main credit reporting agencies allow you to request one report annually, free of charge.
- Dispute the Error: Try to reach the credit bureau through which the lien has been reported and then try to challenge such entry. Produce papers which show that the lien should have been lifted.
- Follow Up: Once the dispute has been filed, contact the bureau to make sure the lien has been taken off quickly.
Conclusion
Tax liens used to come on credit reports and did not get removed if not paid for up to ten years, however credit report laws have changed. Even if tax liens no longer show up in your credit reports, they still have an influence on your credit picture in other ways.
If you would like to avoid a tax lien filing in the future or think you may be a candidate for a future lien, it is critical to address tax problems on a timely basis and start to repair your credit. But most importantly, the payoff of bills, managing your debt, and making smart credit related decisions are ways through which a person can maintain that score in the long run.
For more detailed information on how tax liens affect your credit, visit the official IRS website.
By understanding the impact of tax liens and keeping your credit report accurate, you can maintain better financial health moving forward.
