What Impact Does IRS Debt Have on Your Credit?

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Tax debt can hold far-reaching consequences, and we’re not just talking about interest or long-term installment payments. If you continually neglect to pay up, penalties imposed by the IRS could damage your credit.

The good news? The mere presence of IRS debt doesn’t immediately harm your credit score. How you deal with existing debt will have a far greater impact. A proactive approach can shield your credit to ensure it remains in great shape throughout your tax ordeal and far into the future.

The Role of the Notice of Federal Tax Lien

Traditionally, tax debt did not impact credit until the IRS filed a Notice of Federal Tax Lien. This drastic step was only taken if outstanding debt met a high threshold. Thankfully, the IRS typically offers debtors numerous opportunities to seek payment arrangements prior to resorting to liens or levies.

Another silver lining for those worried about their credit: top bureaus have recently shifted their policies to remove liens from credit reports. These changes followed a Consumer Financial Protection Bureau study, which revealed that tax lien data was often reported incorrectly.

Unfortunately, despite recent credit bureau developments, lien information remains easily accessible to most lenders. Hence, it is as important as ever to deal with tax debt long before the IRS has the opportunity to file a Notice of Federal Tax Lien. Consider a payment plan, which will not impact your credit score. The sooner you take action, the less likely your credit is to suffer as a result of your current tax woes.

There’s no need to let issues with the IRS negatively impact your credit score. With the Highland Tax Group on your side, you can proactively handle current IRS headaches to protect both your finances and your credit. Contact us today to learn more about our tax resolution services.