Tax Liens Come Off Credit Reports But Does It Matter?

The best place to be in your financial life is with a perfect credit score. When your credit score is spotless, everyone wants to be your friend (financially speaking). You get offered the best deals on credit cards, mortgages, loans and more.

A good credit score can save you tens of thousands of dollars (at least) over the course of a lifetime. Unfortunately, every time that a creditor thinks you’re not making good on your obligations your score ends up going down.e

This is even true when the “debt” is government tax or at least it was true. The main credit rating agencies in the United States have all recently announced that tax liens will no longer be admissible for calculating a person’s credit rating.

So, What’s A Tax Lien?

It is a charge placed on either your (or your business’s) property when you’re in tax arrears for personal or business purposes. The property that may be charged can be a car (or cars), your home or your business.ee

How Does That Work With My Credit Rating Now?

When tax liens were on your record they were considered to be a “severe derogatory event” which is the kind of thing that equals a court judgment or a bankruptcy proceeding.

So, getting the tax liens off the credit report and resulting credit score is important. However, that doesn’t mean that people with a tax lien will find that their credit score magically repaired by their removal.

The data from the Consumer Financial Protection Bureau found that only 17% of people who had their liens removed moved up a credit score band. Everyone else did pretty much the same and 6% of people actually had their credit score get worse! (We imagine there were other factors in play in credit scores that dropped).

So, Why Did They Remove Tax Liens From Credit Reports?

The problem is that people don’t check the data they report to credit rating agencies very well. Tax liens were constantly misreported and created a bunch of problems for people who didn’t owe anything.

That’s why you ought to know your credit score (use the links in this post to find out for free), so that you can address any mistakes that have been made on your behalf.

How To Get Rid Of A Tax Lien

There are four ways to get rid of a lien on your property:

1. Pay off the debt.
   
2. Apply for withdrawal. If your taxes are up to date for the last 3 years and you owe less than $25,000, you can get the IRS to withdraw the lien.
   
3. Apply for subordination. This means striking a deal with all your creditors so that the IRS moves down in priority and rescinds the lien.
   
4. Discharge your property. The lien can be discharged if you agree to sell the property to pay off the debt.

Raise Your Credit Rating

Whether or not you have a tax lien you should do everything you can to raise your credit score. It’s life’s passport to more money.  You must start by getting your credit score – so do that now!