How Taxes Affect Your Credit Score

Your credit score affects everything from personal to business loans, and sometimes it can be frustrating to maintain it. Taking out and paying of loans are the most obvious ways to affect your credit score, but did you know that your taxes also impact it? Taxes play a huge role in shaping your finances, to be sure, but they also can impact your credit history. With this said, the way that your taxes interact with your credit score doesn’t always make sense. Below is a brief primer on how your taxes can impact your credit score. 

How Taxes Affect Your Credit Score

A Major Change

Taxes and credit are complicated, and the ways each are calculated have changed drastically over the years. One of the biggest changes in personal finances today is the fact that tax liens no longer directly impact your credit score. Once upon a time, this type of debt would work like any other debt and drag down your score considerably until you paid it off. Today, though, this type of debt isn’t going to show up on a quick credit search. For most, it’s going to be invisible until it comes time to borrow. This means that you can get a tax lien without worrying about how it impacts your credit score.

Indirect Consequences

There are, however, indirect consequences from tax liens that can hurt your credit score. Given that a tax lien can end up directly taking money from your check, you’ll have less money to put towards your other bills. That means that the lien could give you a higher likelihood of making late payments, which will send your credit score down. It also means that it will be harder to pay down your other debts, so it will be tougher to raise your credit score. Be aware of and prepare for these various indirect consequences.

An Invisible Weight

It’s also important to remember that while your tax debts won’t show up on your credit score, they will show up if you try to get a loan. A tax lien can be an incredibly damaging thing to look at when applying for a mortgage or even for a car loan. The individuals processing your loan will almost certainly not only take the monthly payments you have to make on your debt into account, but they will also note that you’ve paid your taxes late—something that can make many lenders skittish.

Talk to Tax Attorneys

If you’re looking at any kind of tax problem, you’ll want to talk to an experienced tax attorney. Not only are these the people who know best how your tax issues will impact your finances, but they can help you find a way to deal with those problems in a way that will allow you to get your credit back to where it needs to be. Though not every case will end in a win for the client, a good tax attorney is always an important ally when you’re having tax problems.

While your taxes won’t directly impact your credit, they will impact your finances. It’s important to pay your taxes on time and to speak with an attorney if you have tax problems. Only by making this choice can you keep your credit score intact.




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