Experian, TransUnion and Equifax now offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
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A tax lien is a claim against your property by the IRS, typically placed when you neglect or fail to pay your tax bill. While a tax lien can impact your financial situation and your ability to obtain credit, it won't show up on your credit reports or negatively impact your credit score.
Does a Lien Appear on Your Credit Report?
Tax liens used to appear on your credit reports maintained by the three national credit bureaus: Experian, TransUnion and Equifax. Even if you paid off your tax debt, the lien stayed on your reports for up to seven years. Meanwhile, unpaid liens remained on your reports for up to 10 years.
In 2017, however, all three credit bureaus implemented changes to eliminate civil judgment records—notes that a consumer owes debt to a court as a result of a judgment—and half of all tax lien data. By April 2018, all tax liens were removed from credit reports by the bureaus.
Keep in mind, though, that if you have a real estate or bank lien, the associated loan—such as a mortgage or auto loan—will appear on your credit reports. However, this won't negatively affect your credit score as long as you make payments on time.
How a Tax Lien Can Affect Your Chances of Getting New Credit
Tax liens may not appear on your credit report, but they're public records, so they can still affect your ability to get approved for credit.
That's because a tax lien indicates that you've had trouble paying your financial obligations. What's more, one of the assets the IRS can place a lien on is your bank account, which can impact your ability to make future debt payments.
In both cases, lenders may consider you to be a risky borrower, and if you're not denied entirely, you may be subject to higher interest rates.
A tax lien can also impact your financial well-being in other ways. In addition to existing assets, the lien may also apply to future assets you acquire. If the IRS seizes your bank account funds, it could impact your ability to meet other existing financial obligations.
How to Check Your Credit Report
To evaluate your credit health, it's important to check your credit reports regularly. You can check your Experian credit report for free anytime, and you can get a copy of your reports from Equifax and TransUnion through AnnualCreditReport.com. You can also get free access to your FICO® Score☉ through Experian.
As you review your credit reports, look for negative items that could be hurting your credit score. Potential issues may include high credit card balances, late payments or too many recent credit applications. Knowing what's impacting your credit can make it easier to determine the best course of action to build and maintain a good credit score.
You can also look for potential inaccuracies in your credit reports. If you notice an account or a derogatory mark you don't recognize, you have the right to file a dispute with the credit reporting agencies.
The Bottom Line
A tax lien no longer shows up on your credit reports, but that doesn't mean you're off the hook. In addition to dealing with the potential seizure of your existing assets, having a tax lien can make lenders think twice about issuing you credit.
You can avoid a tax lien by paying your tax bill on time or setting up a payment plan with the IRS. If you already have a lien in place, paying off your debt in full will eliminate the lien.
Regardless of your tax situation, it's important to monitor your credit regularly to get real-time information about your credit profile. Building and maintaining good credit can help improve your odds of qualifying for credit when you need it.