Close

Tax News

Back to Article List

Do Tax Liens Still Show Up On a Credit Report?

Share this article...

Do Tax Liens Still Show Up On a Credit Report?

 

If you’re wondering if tax liens still impact your credit score, the answer is NOW no!  Up until 2018, they did affect your credit score.  In 2017 and 2018, the three major credit reporting bureaus – Equifax, Experian, and Transunion, made some changes to what shows up on your credit report.

What is a tax lien?

A tax lien is the IRS’ or  State Taxing Authority’s legal claim against your assets when you fail to pay a tax debt.  This tax lien protects the IRS’ or State Tax Authority’s interest in your property, including real estate, personal property, and other financial assets.  

The IRS or State must first assess your tax liability and send you a bill to before filing a tax lien.  If you do not timely pay the full amount of the bill (debt), the IRS or State will issue a Notice of Federal Tax Lien.  A tax lien secures the IRS’ or State’s interest in your present and future assets.  If you fail to pay or make arrangements to settle your tax debt, the IRS or State has the right to levy, seize, and sell real estate or personal property you own or have an interest in to collect the debt.

Changes to tax liens on your credit report

Two major changes happened recently related to tax liens and credit scores.

Change #1: Reporting rules for public records

The first update happened in July 2017 when the criteria for tax liens and civil judgments appearing on consumer credit reports changed.  This update is part of the National Consumer Assistance Plan (NCAP) initiative the three major credit bureaus originally announced in 2015.  The goal is to make credit reports more accurate and easier for consumers to correct errors.

There were various components of the NCAP that rolled out at different times.  This particular update meant that beginning July 1, 2017; all civil public records require the inclusion of a name, address, and a Social Security number or date of birth before appearing on credit records from the three major credit reporting companies.  The credit bureaus were also required to refresh the information at least every 90 days. So, if the public records data didn’t meet these criteria, they could no longer be included in a credit report.

How did the change in reporting affect consumers’ credit scores?

While credit scores themselves don’t appear on a credit report, they are determined using some of the information on your credit report.  The removal of negative information usually means a credit score increase for Americans who previously had tax liens on their credit reports.

After the update, some people saw their score increase a small amount.  However, the Consumer Financial Protection Bureau (CFPB) conducted a study to analyze the full impact.  They found that only 4% of people with civil judgments or tax liens on their credit report saw a credit score increase enough to move them into a better credit scoring band (e.g., from subprime to near-prime or near-prime to prime).  So, the impact of this update was minimal, with only 0.24% of all U.S. consumers seeing a significant change in their credit scores.

Change #2: The removal of tax liens on credit reports

As of April 16, 2018, tax liens (federal and state) were removed completely from credit reports.  Director of Public Education for Experian Rod Griffin stated, “Both paid and unpaid tax liens were removed from Experian credit reports in the spring of 2018.  Tax liens no longer appear in credit reports, and therefore, do not influence credit scores.” Griffin added, “That doesn’t mean the tax authorities won’t attempt to collect tax debts; it just means they are not part of your credit history anymore.”

 

Why do you still want to pay off any tax liens

Tax liens can still have some negative repercussions.  Sonya Smith-Valentine, Esq., financial confidence expert and owner of Financially Fierce, LLC, explains, “A tax lien can still impact you even if it no longer appears on your credit reports, especially if you’re trying to get a mortgage.  A LexisNexis study found that mortgage borrowers who have a tax lien are 5.5 times more likely to go into pre-foreclosure or foreclosure.”

A tax debt won’t just disappear, so it’s important to take care of it as soon as possible.  “Therefore, mortgage lenders may still want to see tax lien information when reviewing a mortgage application.  Lenders have other ways of finding out about tax liens even though they’re no longer on credit reports, such as a lien and judgment report available to financial institutions,” Smith-Valentine adds.

PDF
Printable PDF

Have a Question About This Topic?

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the Terms of Use and Privacy Policy.

NEVER MISS A STORY.

Sign up for our newsletters and get our articles delivered right to your inbox.

 

Track Your Refund

 
Track Federal Refund Check Federal Amended Return Refund

Check your State Refund

Client Login

 

Refer a Friend

.