Do tax liens show up on your credit?

Quick answer: As of April 2018, the three main credit bureaus no longer show tax liens on credit reports. If one or more of your credit reports shows a tax lien, you should request that it be removed.

A lien is a claim to a property that someone used as collateral for a debt. For example, if someone takes out a personal loan at the bank, they may put their vehicle up as collateral. If they stop making the monthly payments, the bank can put a lien on the vehicle. This gives the bank the right to take the vehicle to satisfy the debt.

Tax liens are specifically about unpaid taxes. While other liens might result from unpaid bills or loans, tax liens come from the taxes you owe to the government.

Below, we look at what tax liens are, whether they affect your credit score and how you can avoid them.

Understanding tax liens

If you don’t pay your taxes, the IRS may put a tax lien on your income, property or any other assets you have. Once you pay your taxes, it removes the lien. However, if you don’t pay your taxes, the government could eventually take your property, income or assets.

A tax lien can have serious consequences. If your property has a tax lien, you can’t sell or refinance it until you pay your taxes and the IRS removes the lien.

Also, a tax lien can make it difficult for you to borrow money in the future. Lenders are reluctant to lend money to those who might not be able to pay it back. While tax liens are no longer listed on credit reports, they are a matter of public record. This means that anyone – including creditors, potential buyers, or the general public – can access this information.

Tax liens and credit reports

As of April 2018, the three main credit bureaus no longer show tax liens. If you see a tax lien on one of your credit reports, you should request to have it removed.

However, these liens are still public records. While this means lenders can see them when deciding whether to loan you money, they don’t directly affect your score.

What is a credit report?

Your credit report is a detailed record of your credit history. It covers everything from the auto loans you’ve taken out to public records such as bankruptcies and foreclosures. Based on this report, lenders, landlords and sometimes employers decide how likely you are to repay a loan.

There are three main credit bureaus: Equifax, Experian and TransUnion. Each bureau collects slightly different information, so it’s a good idea to monitor all three. This helps you understand your borrowing power and make sure everything is accurate.

Several years ago, the three major credit bureaus decided to remove tax liens as part of the National Consumer Assistance Plan. This decision improved the fairness and accuracy of credit reporting. As part of the plan, credit bureaus follow stricter identity-matching criteria. They also update the information they get from public records more frequently.

Common misunderstandings about tax liens and credit reports

While these new rules change what can be on your credit report, there are a few reasons some people believe tax liens affect their score. These include:

• Historical impact. Before 2018, credit reports did include tax liens. They could stay on the report for 7 years or even longer if unpaid. Because of historical precedent, many people think tax liens affect their credit scores.
• Public records. Tax liens are public records. This means anyone who searches for the information can access it. Other public records include bankruptcies and civil judgments. Because these things do impact credit scores, many people assume tax liens do as well.

While these misconceptions make sense, your credit reports should not contain tax liens. If your credit report still shows a tax lien, there are some steps you can take to remove it.

Removing incorrect tax liens from credit reports

You can contact the three major credit bureaus to have them remove tax liens from your report.

Checking your credit report

By law, you’re entitled to a free credit report from each major bureau on a periodic basis. To get your free report, visit AnnualCreditReport.com. This is the only website U.S. federal law authorizes to provide your credit reports. 

Your free credit report doesn’t include a credit score. However, it has information that can impact your scores.

Once you get your credit report, look it over carefully. Check for incorrect personal information, accounts you don’t recognize or outdated information. You’ll also want to pay attention to negative marks, such as late payments or public records.

Disputing errors on your credit report

If you spot any errors on your credit report, including tax liens, it’s important to address them.

To dispute the error, identify the credit bureau that’s showing the tax lien and file a dispute. Explain that tax liens are no longer included on credit reports.

Working with credit bureaus

If you haven’t heard back from the credit agency after 45 days, it’s a good idea to follow up on the dispute. You can do this by checking the online portal where you filed the dispute. You can also call or write the credit bureau’s customer service department. Be sure to provide your dispute confirmation number.

A tax lien can affect your borrowing power, but it shouldn’t impact your credit score. Proactively managing your financial health can help you address mistakes on your credit report and achieve your financial goals.

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