Certain financial miscues can send your three-digit credit score plummeting. If you miss a car loan payment or pay a credit card bill late, your credit score will fall. If you declare bankruptcy, your score will take a huge hit. Your score could also suffer if you don't pay your income or property taxes on time. But the impact of this will take longer to show up on your credit score.
Property and Income Taxes
There's a significant difference between paying your taxes late and missing a car loan or credit card payment: If you can't pay your property taxes on time or if you're late paying your income taxes, your credit score won't immediately suffer. Your credit will remain unscathed until either your local county's property taxing authority or the Internal Revenue Services (IRS) takes action to collect your debt.
Liens to Encumber Past-Due Taxes
Both the IRS and your local county can place a lien against your home for unpaid taxes, the IRS for unpaid income taxes and your county for any property taxes that you've failed to pay. This means that either the IRS or your county has the right to seize your home if you fail to pay your taxes. Once your county or the IRS files a lien, the agencies will report it to the three national credit bureaus, Experian, Equifax and TransUnion. Once this happens, your credit score will fall.
It's difficult to determine how many points your credit score will fall after a lien for unpaid taxes is placed on your home. The actual number drop in your score will depend on how strong of a credit score you had before the lien and whether you have any other missed or late payments on your credit report. In general, though, you can expect a lien to cause your credit score to drop by 100 points or more.
You can prevent unpaid taxes from resulting in a lien. The easiest way, of course, is to find some way to pay your unpaid taxes before the IRS or your county files a lien against your home. You might also be able to work out a compromise with the IRS or your county, everything from a settlement in which you agree to pay a certain percentage of what you owe or a payment plan that allows you to make monthly payments that you can afford until your debt is repaid. It's important to seek solutions; a tax lien falls under the "public records" portion of your credit report, and unlike other bad financial news it will not automatically fall off your record after a set number of years. Once you pay off your debt or work out a settlement plan, your lien will remain on your credit report for seven years before you can have it removed.
- H&R Block: Can Paying Taxes Late Affect Your Credit?
- MintLife: How Tax Liens Affect Your Credit
- CreditCard.com: Six Surprising Things That Won't Hurt Your Credit
- myFICO. "What's in my FICO Scores?" Accessed Feb. 29, 2020.
- Experian. "How Long It Takes for a $0 Balance to Show on Report." Accessed Feb. 29, 2020.
- Equifax. "Collection Accounts and Your Credit Score." Accessed Feb. 29, 2020.
- TransUnion. "FICO Score 9," Page 2. Accessed Feb. 29, 2020.
- myFICO. "Amounts Owed." Accessed Feb. 29, 2020.
- Experian. "Closing a Credit Card Can Hurt Your Credit Score." Accessed Feb. 29, 2020.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.