How Unpaid Tax Can Affect Credit: Do you know not paying your tax can affect your credit score? Owing large tax bill can be overwhelming and stressful. Also, delaying or not paying your taxes can hurt your credit score.
Sometimes unpaid tax bill may not directly affect your credit. However, it can bring you negative consequences. These consequences bear on your financial situation.
You may ask: How does it affect your credit score? This article focuses on unraveling how this is possible. Before then, what is a credit score?
What is a Credit Score?
A credit score is a numerical expression. It is based on a level analysis of a person’s credit files. It represents the credit worthiness of an individual.
Also, it is primarily based on a credit report. And, it is based on information sourced from credit bureaus.
Does Unpaid Taxes Impact on Your Credit Score Directly?
Prior to April of 2018, this was the case. Tax liens were commonly included on credit reports. This was done with all three credit reporting agencies. These agencies are:
Now that tax liens no longer show up on credit report things have changed. Even so, unpaid taxes can still cause you a lot of problems.
Ways Unpaid Taxes Affect Credit Score
It is important you note this. You could face serious financial consequences if you do not pay your taxes. Below are some of the ways this happens;
1. You will End up Paying More
This one of the ways your credit score can be affected. Like other bills, your taxes have a due date. That due date is generally April 15. If you owe the federal government and you cannot pay it by this deadline:
You may be charged a penalty for not paying your taxes on time.
Also, the IRS will typically charge you interest on top of your unpaid taxes. This also happens to your penalty fees.
This could make it more challenging to keep up with the rest of your bills. Also, if this happens, note. Your late tax payment could impact upon your credit score negatively.
2. Also, You Might Have Trouble Qualifying for a Loan
Your credit reports do not show tax liens anymore? Do not rejoice yet. This is because a tax lien can still cause you problems. This will be when you apply for a loan.
Also, this can occur when you apply for a mortgage. Thus, your best bet is to pay off your tax lien. You are to do this before applying for a mortgage.
What to do with Unpaid Taxes
If you have a tax bill that you cannot pay, do not ignore it. Ignoring it is not the answer. In fact, as penalties continue to climb, your situation worse.
Instead, consider reaching out to the IRS to discuss payment plans. Also, reach out to discuss other tax relief options. If your credit score is good, you might qualify for a loan. This is to cover your tax bill at a lower interest rate. This is better than what the IRS would charge.
It is important you note this. Even if unpaid taxes do not hurt your credit score, you should know. They can still make your life a lot more stressful. As such, addressing your tax issues head on is your best move.
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