Owing the IRS
in taxes doesn’t immediately affect your credit. Unlike commercial lenders, the
government is prohibited from reporting your tax debt to credit bureaus.
However, if you fail to resolve your tax debt, you risk having the IRS file a
tax lien against you, and when that happens, the IRS is compelled to let your
creditors know that they have the right to seize your assets in lieu of
payment.
A tax lien is a
public record that will appear on your credit report, and thus will affect your
credit score. Once a Notice of a Federal Tax Lien is levied against you, you
may find it hard to get credit. Fortunately, there are ways that you can pay
your tax bill and cancel its impact on your credit.
Personal Loan
You can apply
for a personal loan to pay off a tax bill, but the loan amount and your monthly
payment record will still appear on your credit reports. Also, the loan itself
will be considered an inquiry into your credit, which will reduce your credit
score a few points, though the decline will be temporary.
Credit Card
Charging a tax
bill to a credit card is a viable option for card holders. However, there will
be consequences to your credit score if you’re already paying a hefty sum each
month—maxing out a credit card can hurt your credit utilization ratio.
Whichever
strategy you choose, if you’re in trouble with the IRS, it’s a good idea to
consult a tax lawyer first before proceeding.
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