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.
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.
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.