Tax Liens and Your Credit Report

One of the most damaging credit
score
killers are unpaid tax liens.  Justice _scaleUnpaid tax liens can damage your
score for years to come and will continue to cause damage even
after they are “released” or paid.  An unpaid tax lien can
remain on your credit file indefinitely per the Fair Credit Reporting Act
(“FCRA”). 

A new policy proposed by the Internal Revenue Service (“IRS”)
suggests a trend toward removing paid tax liens from consumer
reports.  Even after payment, a tax lien will continue to be
reported on your credit file and can do just as much damage to
your credit score
as it did prior to payment.  This new
policy proposes that after full payment of your lien, it should be
removed from your report earlier than the statutory seven year reporting
period
, confirmed by all
three major credit bureaus
, Equifax, Experian and Trans
Union.  The purpose of this policy is to aid consumers who
make the effort to pay off debts.  This policy will allow
responsible consumers to clean up
their credit report
and begin rebuilding their credit after
repayment.

While I discussed in previous posts
proposed amendments to the FCRA
regarding removal of paid
medical debt
, currently, paid tax liens are the only items that
would be removed from your report after payment in full.  This
deletion however, is the type of conduct the credit reporting
industry looks down on, as your history of timely
payment
should be accurately indicated on your report and
ordering a deletion of an account you were delinquent on does not
accurately reflect your ability to
pay.         
       
It is important to note that this policy only applies to tax liens
paid off in full.  So if you cannot afford to make a complete
payment and you settle the lien for less than the full balance, the
tradeline will still be reported on your credit file as “released”
and will continue to be reported for seven years from the date it
was settled.  Further, the IRS states that it is the
responsibility of the consumer to request a
deletion of the tradeline
.  If you make full payment of
your tax lien, you must write to the credit reporting agencies,
similar to launching
an investigation
into an inaccuracy on your credit file, and
request a deletion of the tradeline due to payment in full. 
Providing proof of payment is highly recommended, to avoid the
hassle of drafting multiple letters.    

If you have a paid tax lien on your
credit report
or have any issues with your credit report, contact SmithMarco P.C. for a free case review