A tax lien will definitely hurt your credit score, but it's impossible to say by exactly how much. It's also impossible to say exactly how much paying the lien off will improve your score. Companies treat the systems used to calculate your FICO score and other credit scores as confidential information. Credit bureaus do say, however, that the effect of any one item will depend on what else is in your report.
Tax Liens
A tax lien gives a government body a claim on your property -- a house, a car or a boat, for instance -- for unpaid taxes. Local governments can levy liens on your real estate if you fail to make your payments; the IRS may use liens if you don't pay income tax. To pay them off, you'll have to settle not only the original debt but any interest and penalties the government has applied. Even if the government doesn't foreclose, it's difficult to sell property with a lien already on it.
Credit Reports
Even after you pay off a tax lien, it will stay in your credit file for seven years. Unlike other bills, if you pay off only part of a tax debt -- the IRS sometimes accepts partial payment -- it will still be treated in the report as if you'd paid it off in full. However, there is no guarantee that paying it off will restore as many points as filing the lien took off your score.
Credit Score
Your payment history is the largest part of your FICO credit score. It's based on whether you pay your bills regularly, how late your late payments are and the size of the delinquent debts. Timing is also important: A tax lien you paid off six years ago will matter less than a lien you paid off six months ago. The lien's effect on your score depends on the overall report: If you have bankruptcies or several delinquent credit accounts, paying off one bad debt may not help much.
Errors
If you discover your credit report lists an unpaid lien that you already settled, you're entitled to have it corrected. Contact the credit bureau and present the proof that the lien was settled. Check with the three big credit bureaus, Experian, TransUnion and Equifax, in case they all have the same mistake, and correct it there too. When you check your credit again, make sure the bureaus removed the information and didn't re-enter it. The Annual Credit Report.com website will provide you with three free annual reports, one from each bureau.
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