Do Tax Liens Affect Your Credit Rating?
This is a trick question.
The Positives:
Tax liens currently do not affect your credit score. Because of the Equifax case back in 2018, the credit bureaus stopped including tax liens on credit reports as derogatory history.
Note: Before 2018, yes, tax liens definitely were negative items that lowered credit scores. The rule changed then, it could change back again.
But again, right now, these liens don’t hurt your credit score.
The Negatives:
Having received a Notice of Federal Tax Lien can affect how you are rated when you apply for credit. If the lien is not removed:
- Now: Tax liens attach to your assets or any property that you currently own. This applies to any real estate you have, cars, bank or investment accounts, even securities or other investments.
- Later: Until they are paid or otherwise satisfied, these liens will also attach to any assets you acquire in the future.
Why this matters:
- While the lien is active, it is difficult for you to sell your assets and receive all (or sometimes any) of the proceeds. Instead, some of those funds are used to pay off the lien.
- When a known state or federal tax lien attaches to your current or future assets, lenders will consider your loan less favorable to give credit. This is because no lender wants to have a government claim or any asset which that lender is financing.
- Even unsecured lenders, like credit card issuers, are not usually willing to issue new accounts or higher credit limits.
So yes, tax liens still negatively affect your overall “rating”, because liens limit your actual ability to borrow.
To learn how to remove tax liens, here is an earlier article that explains each lien situation, and what steps must be done. Or you can also download this step-by-step eGuide.
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