What is a tax lien?
A tax lien is the government's claim against your assets when you fail to pay a tax debt. If the IRS assesses your liability, sends a notice to demand repayment, and you fail to respond within ten days, the IRS can then file a tax lien against your property and attach it to all of your assets, including your home, car, and business. The IRS also notifies your creditors that there is a tax lien against your property, which prevents you from selling or borrowing against your property until you pay your taxes.
How does it affect my credit?
Like other public records, tax liens can easily knock 100 points off your score. You can estimate how a tax lien will affect your specific score by checking out our Credit Simulator.
In addition to lowering your score, tax liens can also hurt your ability to be approved for new credit and loans, hike up your interest rates, and increase premiums on your insurance policy.
How do I remove a tax lien from my credit report?
Unlike other public records that drop off your report eventually, unpaid tax liens will remain on your report indefinitely.
Because of this, the best way to get rid of a tax lien is to pay your tax debt in full. If the lien has been paid, it will stay on your report for seven years from the date it was paid. Make sure that your report states that it has been paid or settled to minimize the impact on your report and score.
The IRS offers several payment options that could help keep a tax lien at bay. Take advantage of those options and try to avoid a tax lien at all costs.
After the seven years, the tax lien should drop from your report. If it doesn't, you have the right to dispute it.