Federal tax liens are among the most damaging reasons for one’s credit reputation. Once the Internal Revenue Service (IRS) starts chasing you with a tax lien notification, you can find your credit on the verge of being declared as bad credit. Most of the individuals are unable to follow the right approach to handle a tax lien, though there are some tips to make the situation easier. Learn about these tips in the discussion below.
What to Do When You Receive a Tax Lien
As soon as you are informed about a tax lien, first of all, you are required to review the details and verify the information. You might have received a tax lien if you have defaulted in paying federal taxes related to income, property or any other entity. If you are a defaulter, you definitely need to worry. Otherwise, the next step should be to verify the information with the credit bureaus.
It is not surprising that more than half of the credit reports from the three credit bureaus contain wrong information, including that about federal taxes. So, you need to review the details and find out why you have received the tax lien. If you find the information to be valid, or if you had already paid that particular tax, you need to contact IRS and get the items cleared.
Once the items are cleared, you need to notify all credit bureaus. Don’t leave it up to the IRS, as they are not held responsible for updating the information with the three credit bureaus.
If You Have Defaulted
If you have been a tax defaulter, you may face the following:
- The IRS not only provides you with a tax lien, but may take this further and issue federal tax levies and garnish wages from paychecks as well as bank accounts.
- Secondly, you have bad credit in your credit report, for the whole world to see, whenever you try to open a new credit account. Hence, denial of credit, high interest rates and unfavorable credit terms come your way.
How to Handle It?
Tax lien remains in your credit report for as many as seven years, even if you pay the tax in full amount. However, it is good to pay it off as soon as possible, or else it can further damage your credit score.
You can solicit the help of expert companies, who are good at negotiating with the IRS and deciding the payment installments convenient for you. Also, these experts can work to get the tax lien removed from your credit history before the fixed time.
In any case, you should act fast to handle a tax lien and save your credit score from getting declared as a bad credit score.