Will Delinquent Taxes Hurt My Credit?

by Don Rafner

Certain financial miscues can send your three-digit credit score plummeting. If you miss a car loan payment or pay a credit card bill late, your credit score will fall. If you declare bankruptcy, your score will take a huge hit. Your score could also suffer if you don't pay your income or property taxes on time. But the impact of this will take longer to show up on your credit score.

Property and Income Taxes

There's a significant difference between paying your taxes late and missing a car loan or credit card payment: If you can't pay your property taxes on time or if you're late paying your income taxes, your credit score won't immediately suffer. Your credit will remain unscathed until either your local county's property taxing authority or the Internal Revenue Services (IRS) takes action to collect your debt.

Liens to Encumber Past-Due Taxes

Both the IRS and your local county can place a lien against your home for unpaid taxes, the IRS for unpaid income taxes and your county for any property taxes that you've failed to pay. This means that either the IRS or your county has the right to seize your home if you fail to pay your taxes. Once your county or the IRS files a lien, the agencies will report it to the three national credit bureaus, Experian, Equifax and TransUnion. Once this happens, your credit score will fall.

The Fall

It's difficult to determine how many points your credit score will fall after a lien for unpaid taxes is placed on your home. The actual number drop in your score will depend on how strong of a credit score you had before the lien and whether you have any other missed or late payments on your credit report. In general, though, you can expect a lien to cause your credit score to drop by 100 points or more.

Take Action

You can prevent unpaid taxes from resulting in a lien. The easiest way, of course, is to find some way to pay your unpaid taxes before the IRS or your county files a lien against your home. You might also be able to work out a compromise with the IRS or your county, everything from a settlement in which you agree to pay a certain percentage of what you owe or a payment plan that allows you to make monthly payments that you can afford until your debt is repaid. It's important to seek solutions; a tax lien falls under the "public records" portion of your credit report, and unlike other bad financial news it will not automatically fall off your record after a set number of years. Once you pay off your debt or work out a settlement plan, your lien will remain on your credit report for seven years before you can have it removed.

About the Author

I'm a veteran freelance writer with more than 15 years experience writing for newspapers, consumer magazines and trade publications. My stories have appeared in the Chicago Tribune, Washington Post, Christian Science Monitor, BusinessWeek Online, Business 2.0 Magazine and many other publications. I am also the managing editor of a real estate magazine based in Chicago and the writer of www.propertycrossroads.com, a blog devoted to residential real estate. This year, my first comic-book series, GEARZ, was published by Blue Water Publishing. The company will be publishing three other of my comic-book mini-series in 2008 and 2009.

Photo Credits

  • Creatas/Creatas/Getty Images