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Does Owing the IRS Affect Your Credit Score?
July 1, 2025
Quick Answers
The IRS does not report tax debt to the three major credit bureaus, so owing taxes alone will not directly lower your credit score.
Federal tax liens, which previously damaged credit, have been removed from consumer credit reports since 2018 and no longer appear.
Your credit can be indirectly affected if you use a loan or credit card to pay your tax bill and subsequently struggle to repay that new debt.
What Does It Mean to Owe the IRS?
Owing the IRS means you have an unpaid tax liability after the official filing deadline has passed. This situation can arise from various circumstances, such as insufficient tax withholding from your paychecks, earning self-employment income, or realizing capital gains. When you don't pay the full amount you're assessed by the due date, the remaining balance becomes a tax debt owed to the federal government.
This tax debt does not directly affect your credit score, as the IRS does not report payment information to the major credit bureaus. However, if the debt goes unpaid for a significant period, the IRS may file a Notice of Federal Tax Lien, which makes your debt a matter of public record. While tax liens are no longer included on standard credit reports, lenders may still discover them through public record searches, potentially influencing their decision to extend credit.
How Owing the IRS Could Affect Your Credit Score
Many people assume owing the IRS automatically damages their credit score. While this isn't directly true, the financial fallout from unpaid taxes can certainly have an indirect negative impact on your credit.
- Initial Tax Bill: The process begins when the IRS sends a notice for unpaid taxes. At this stage, the debt is a private matter between you and the IRS and does not affect your credit score.
- Federal Tax Lien: If you neglect to pay, the IRS can file a Notice of Federal Tax Lien. Although these liens no longer appear on your credit reports, they are public records that lenders can find.
- Difficulty Securing New Credit: When you apply for a major loan, such as a mortgage, lenders often conduct public record searches. A tax lien can signal high risk, potentially leading to a loan denial.
- Asset Seizure (Levy): Continued non-payment may lead to an IRS levy, where assets like bank funds are seized. This can cause you to miss payments on other debts, which will be reported to credit bureaus and lower your score.
- Using Credit to Pay: To settle the debt, you might resort to a personal loan or credit card. This increases your debt load and credit utilization ratio, which can negatively impact your credit score.
How Much Will Owing the IRS Affect Your Credit Score?
While owing the IRS doesn't automatically damage your credit, the situation has nuances that can indirectly affect your financial health. Here are the key factors to consider.
- No Direct Reporting. The IRS does not report tax debt to the three major credit bureaus. This means owing taxes won't appear on your credit report or directly lower your score on its own.
- Federal Tax Liens. Tax liens are no longer included on credit reports, but they are public records. Lenders can still discover them through other means, potentially influencing their lending decisions.
- Indirect Consequences. An IRS levy on your bank account could lead to missed payments on other debts. These late payments are reported by creditors and can significantly harm your credit score.
How You Can Avoid Owing the IRS Affecting Your Credit Score
Establish an IRS Payment Plan
If you cannot pay your tax bill in full, proactively arrange a payment plan with the IRS. An Installment Agreement or an Offer in Compromise can prevent the government from filing a Notice of Federal Tax Lien, which is the primary action that could impact you.
File and Pay on Time
The most straightforward strategy is to file your taxes and pay what you owe by the annual deadline. This preventative measure ensures you never have outstanding tax debt, completely removing the possibility of it affecting your financial record or creditworthiness with potential lenders.
Choose the Right Card to Owing the IRS
Improving your credit score is not only possible but achievable through consistent, positive financial behaviors. With the right strategies, you can see meaningful changes to your score in as little as three to six months.
- Monitor your credit reports. You can get free credit reports from all three major bureaus to check for inaccuracies, signs of identity theft, and track your progress.
- Set up automatic payments. Since payment history is the most significant factor in your score, automating payments ensures you never miss a due date.
- Lower your credit utilization. Aim to keep your credit utilization ratio below 30% by paying down balances or requesting a credit limit increase.
- Become an authorized user. Being added to a credit card account with a long history of on-time payments and low utilization can help improve your score.
- Limit hard inquiries. Space out your applications for new credit, as applying for too many accounts in a short time can temporarily lower your score.
- Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as revolving credit from cards and installment loans.
The Bottom Line
While owing the IRS won't directly impact your credit score, as tax debts aren't reported to credit bureaus, the consequences of non-payment can still affect your overall financial health.
Frequently Asked Questions
Does owing the IRS directly affect my credit score?
No, owing the IRS does not directly impact your credit score. The IRS does not report your tax debt or payment history to consumer credit bureaus.
Will a federal tax lien show up on my credit report?
Since 2018, federal tax liens no longer appear on consumer credit reports from Equifax, Experian, or TransUnion. However, they are still a matter of public record.
How can paying my tax bill affect my credit?
If you pay your tax bill with a credit card, the increased balance can raise your credit utilization ratio, which may temporarily lower your credit score.
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