The Internal Revenue Service is always serious about the tax filing deadline on April 15th every year. The consequences of failing to file your tax on time can be severe. Although your credit score may be the last thing that you will be thinking about as you file your taxes, there are certain instances when your taxes can have a significant impact on your credit score. Keep in mind that filing your taxes on time doesn’t benefit your credit score in any way unlike other types of payments you make to your credit card.
How Does Your Unpaid Income Tax Affect Your Credit?
Typically, the IRS will do anything it can to protect your credit score since it’s an authority of the federal government. Several measures have been put in place to protect your credit rating from being lowered just because you owe IRS. For instance, if you file your tax return and you are unable to pay the complete amount, you can call an IRS agent and request for an extension which will protect your credit score and allow you more time to settle your payment.
The accumulative amount of tax you owe the IRS plays a critical role in establishing whether your credit score rating will be affected. If you owe the tax body more than $10,000, then it will automatically file a Notice of Tax Lien against you which will start appearing on all of your credit reports. The tax lien tag is a negative item on your credit score.
How Does Tax Lien Affect Your Credit Score
If the IRS has already filed a tax lien against you for failing to pay your taxes, it serves as a clear indicator to lenders that you are a potentially risky client. Failing to pay your taxes gives the notion to future employers and lenders that your financial situation is in distress or you are prone to ignoring your financial payment obligations.
Sometimes, the appearance of a tax lien on your credit score report can make you lose up to 150 points. This can be a significant loss if you are already struggling with an average or poor credit score. A 150-point deduction can still be disastrous even if you are having an exemplary credit score.
What Can You Do to Avoid Harming Your Credit Score with the Issue of Unpaid Taxes?
A tax lien tag will never get off your credit report unless you pay the taxes in full. If the debt remains unpaid for long, the IRS can lay claim on your personal assets such as car or home. To avoid reaching this point, you can consider getting a no credit check loan to cover a larger-than-anticipated tax bill and repay it to build your credit score further.