Does Owing The Irs Affect Your Credit Score?

This post will show how your credit score and financial situation could suffer depending on back taxes owing to the Internal Revenue Service (IRS). It is unfortunate, nevertheless, since unpaid taxes may have specific effects on your credit in the following respects. Here is some information on how owing to the IRS could affect your credit score.

This brings us to another question – Can the IRS report you to credit bureaus?

The three biggest consumer credit reporting companies—Equifax, Experian, and TransUnion—along with the IRS disclose outstanding tax obligations to each other. The amount considered is owing as the IRS has said they would only record receivable tax debt. This generally happens after you submit your tax return; the amount you have to pay is still outstanding either the IRS audits your tax return or penalties are applied on the unpaid amount.

If you fail to pay your taxes or create a payment schedule on how you intend to clear your tax, the IRS will notify the credit bureaus just like the credit card company does when you default on the credit card debt.

How do Tax Debts Show Up on Your Credit Report?

If the unpaid balance is not paid, the IRS will report it to the credit bureaus and it will reflect on the credit report like any other debt. The credit report entry will include helpful information such as:

• The total sum of money that has been borrowed
  
• The date that the tax debt was computed
  
• This debt was being assessed by which government agency: the IRS.
  
• Account details and numbers

This makes it possible for potential lenders and creditors to note that you owe the federal government in taxes when they run your credit report check. They can then incorporate it into their decision on whether to give out a loan or not.

Does Failure to Pay Taxes Affect Your Credit Rating?

The act of having an unpaid tax debt attached to your credit profile can bring down your score. Just like missed credit card or loan payments, tax debts can seriously damage your credit in two ways:

1. Increased Credit Utilization Ratio

This shows the extent to which you’re utilizing your credit limits, i.e., your credit utilization ratio. The reduction of this important ratio is the result of owing money.

2. Reduced Payment History

It is advisable to ensure all other debts are paid on time as lenders need to see that there is prompt payment on debts. CO: Outstanding tax liabilities render you a higher credit risk in the eyes of the IRS.

Indeed, a study conducted by the credit monitoring service Credit Karma revealed that those who had tax liens on their credit profiles had an average score decrease of 139 points. A drop like that can make it harder to get approval for credit for instance by two or three times.

Other Consequences of Delinquent Tax Liability

Beyond the credit score damage, owing the IRS can impact your finances in other negative ways as well:

• Lien applied on the assets
  
• The IRS has the authority to seize wages and freeze bank accounts
  
• More penalties and interest from the IRS included
  
• Tangible and intangible property or assets may be seized and sold

As you can notice, IRS tax debts can accumulate and compromise your fiscal status greatly if not paid on time.

Allow me to provide you with some guidance on how to deal with the Internal Revenue Service debt.

If you have unpaid taxes to the Internal Revenue Service, then it is high time you took the necessary steps to reduce the impact it will have on your credit rating. Here are a few smart tips:

• However, if you haven’t, file all tax returns to eliminate failure-to-file penalties from the equation.
  
• Come up with an IRS payment plan that you can comfortably afford towards the repayment of the owed amount
  
• Find out more about the possibility of paying your tax debt in a lesser amount as compared to the total amount due.
  
• Dispute any negative items on your credit report as soon as unpaid taxes are listed

The management of an unpaid tax debt is not easy. To handle your tax issues most efficiently contact a tax practitioner or the Internal Revenue Service. Preserve your credit rating do not let IRS collection procedures harm you, and pay attention to the role of tax debt.

The Takeaway

Yes, in the sense that if you owe the IRS some taxes, and you fail to pay such an amount, then it will be reported to credit bureaus. This can reduce your credit rating as is similar to any other defaulted amount of debt. Hence pay any owed taxes as soon as possible whether by paying the amount in full or by negotiating for an affordable IRS installment program. This can help reduce credit damage and other problems that can be incurred.

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