As Tax Season creeps up on us, tax questions start to creep in, too. Among them – how will taxes affect my credit score?
Your owed taxes won’t directly and immediately have an effect on your credit, but there are a few considerations to make when paying those taxes:
- If you owe
Unpaid taxes will not be your financial friend. If you owe more than $10,000 in back taxes, the IRS may lien your tax refund. While a lien doesn’t show up on your credit report, it is possible that future lenders could view it in public records. Bankruptcy is another possible outcome of unpaid taxes, and it could remain on your credit for up to 10 years. It’s safe to say that paying your taxes – by whatever means necessary – is your best bet for keeping your credit healthy.
- How you pay
Let’s say, come April 15, you have a big tax bill on your hands. If you don’t have the money to pay it off right away, you might pay it another way – like with a credit card or a personal loan. When you choose to pay your tax bill in one of these ways, the monthly repayment – ultimately – will impact your credit. It’s important to make on-time, consistent payments to maintain or improve your credit score and keep you in good standing with future lenders.
Owed taxes don’t have an immediate impact on your credit score, but by making sure that you pay and manage your payment methods, you can rest easy knowing your credit score is safe.