How Many Points Does a Tax Lien Decrease Your Credit Score?

What is a Tax Lien?

A tax lien is the government’s claim against a person’s property for failing to pay a tax debt to either the federal or state government. Usually, before the State of Federal Government places a tax lien against a person, they give him a chance to pay the money he owes them. If the person does not pay on time, the IRS or State Tax Authority issues a notice of tax lien that, in the past, appears on your credit report. More recently, tax liens no longer show up on a person’s credit report. So, how many points can a tax lien drop your credit score? We will answer this question in much detail below.

How Many Points Does a Tax Lien Decrease Your Credit Score?

A tax lien will not decrease your credit score by any points because the three National Credit Bureaus (Experian, Equifax, and Transunion) have removed tax liens from credit reports. So, if a tax lien was placed against you, it will not appear on your credit report and will therefore not decrease your credit score. These changes were agreed upon in 2017 and implemented in April of 2018. The removal of tax liens from consumers’ credit reports applies to both state tax liens and federal tax liens.

So, if you’re worried about a tax lien decreasing your credit score, you should no longer worry as they will not appear on your credit report. That said, although a tax lien will no longer appear on your credit report, does not mean that the State or Federal government will not attempt to collect the debt, they may attempt to collect it, but it will not appear on your credit report.

Although you no longer have to worry about a tax lien appearing on your credit report, if you had a past tax lien on your credit report, it should have been removed and you should have seen a significant increase in your credit score.

In the event that you find a tax lien on your credit report that’s decreasing your credit score, you should dispute the tax lien with the major credit reporting bureaus so that it can be removed from your credit report and no longer decrease your credit score.

The Impact of Tax Liens on Your Credit Score

In the past, if a tax lien was added to your credit report, it would have caused a significant decrease in your credit score. A tax lien had a severe negative impact on consumers’ credit score, often resulting in a point decrease of up to 100 points. Even if the consumer were to pay to the tax lien, it would still remain on a person’s credit report for approximately seven years, while an unpaid tax lien would remain on a person’s credit report for up to ten years. Luckily, tax liens no longer show up on consumers’ credit reports.

How Can You Removed a Tax Lien from Your Credit Report?

If you have a tax lien that’s being reported on your credit report, you can have it removed by disputing it through the credit reporting bureaus regardless of whether the tax debt has been paid or is still unpaid. That said, keep in mind that disputing your tax lien may remove it from your credit report, the lien will still be in force and so you should contact the IRS or your state’s tax authority to settle the unpaid amount. The second way you can have a tax lien removed from your credit report is to contact the IRS or your State’s Tax authority and ask them to remove the lien from your credit report. If the IRS or tax authority agrees to remove the lien from your credit report, check your credit report after the removal to ensure that the lien has been removed from your credit report.

Removing a Tax Lien from Your Credit Report Does Not Remove Your Duty to Pay

Although you may be successful in removing a tax lien from your credit report so that it does not decrease your credit score, this does not mean that you are not required to pay the outstanding lien. Having a tax lien is especially problematic for those who are seeking to purchase a home. This is so because even though a tax lien will not appear on your credit report, lenders will ask you whether you have any outstanding liens and you will have to answer truthfully.

Also, lenders are able to conduct their own lien and judgment search to uncover any tax liens against you. So, if you’re thinking about purchasing a home, you should settle the tax lien against you with either the IRS or your State’s tax authority. This is so because if a lender uncovers the fact that you have a tax lien against you, they may be unwilling to lend you money to buy a home because a tax lien tells them that you are more likely not to make timely payments on your home loan. So, if you’re thinking about buying a house, take care of your tax lien first.

Credit Score Planet Frequently Asked Questions

1) How do I get a State tax lien removed from my credit report?

You can get a State tax lien removed from your credit report so that it does not impact or decrease your credit score by disputing the lien with the three major credit bureaus. You can file a dispute with each one of the credit bureaus reporting the lien by visiting their website, creating an account, and disputing the tax lien being report against you. As of April 2018, tax liens can no longer be included in your credit report, so if a lien is still showing up on your credit report, open a dispute and have it removed. You can do this on your own or you can contact a credit repair company to have the lien removed for you.

2) Can I buy a house with a tax lien on my credit?

You may be able to buy a house with a tax lien, however, lenders will ask you about the lien and some will be unwilling to lend you the money to buy a house with a tax lien against you, regardless of whether or not it appears on your credit report.

3) How long is a lien good for?

In the past, a tax lien that is paid would appear on your credit report for seven years, while an unpaid tax lien would appear on your credit report for ten years. However, tax liens can no longer show up on your credit report. That said, even if a tax lien does not appear on your credit report, you are still liable to the government for paying off the debt that you owe them.

4) How do you get a lien removed?

You can get a lien removed by filing a disputing with the credit reporting agency reporting the lien on your credit report. Typically, all credit reporting agencies have a process that you can follow to dispute inaccurate items that appear on your credit report. Simply conduct a google search, such as “dispute Experian Tax lien” or “dispute Transunion tax lien” and the results should guide you as to how to file a dispute to have the tax lien against you removed from your credit report.

5) Does a tax lien decrease my credit score?

If a tax lien shows up on your credit report, it will decrease your credit score. However, as of April 2018, tax liens cannot be placed on your credit report, so if there is a tax lien on your credit report, inquire about disputing it and having it removed from your credit report.