How An IRS Federal Tax Lien Can Affect Your Credit

The IRS attaches a federal tax lien on a tax payer's property when accumulated back taxes cross a certain limit. While it is in force it will not affect your day to day life. However it will raise its ugly head every time you apply for a new loan, mortgage or even a new credit card!

This is due to the fact that an IRS imposed federal tax lien shows up in credit reports and records and adversely affects your creditworthiness. Once the IRS attaches a federal tax lien to your property it can remain on your credit report for as long as 7 years. Even when the matter is settled, it can still show up in credit investigations.

There are basically three ways in which a federal tax lien can appear on your report. It can be showed as a paid tax lien which means that it was paid in its entirety. Alternatively it could be listed as a settled tax lien or a dismissed tax lien. The first implies that you reached a settlement with the IRS while the second means that the IRS found the lien invalid and did not enforce it.

But you do not have to accept any of these listings if you think they are unjustified. Steps can be taken to ensure that it is removed completely and that the information is not available to future creditors.

First you need to check whether the appearance of the tax lien on your records is valid at all. Credit reports need to be checked at least once a year to give you an understanding of your status when you apply for credit. Errors are common and ratings can be affected by information that it not very precise.

If you are aware of how large your IRS debt is and have the right documentation to prove it, you can approach the credit bureaus and request them to validate the tax lien that appears on your credit records. The credit bureaus will then conduct an investigation to try and verify the tax lien. If they fail to do so, they will remove it from your record. However the IRS may choose to reinsert or verify the federal tax lien. In such cases, the best course of action is to figure out what you should do in order to have it lifted.

Once action is taken, you can approach the credit bureaus again after a period of 3 to 6 months and initiate the process of removing the IRS federal tax lien from your records. After all, having healthy credit is to your advantage.

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