How Much Will My Credit Go Up if I Dispute a Tax Lien & Then It's Deleted?

Tax liens can obliterate even the best of credit scores for decades, and you will probably still have to pay back your tax obligation plus interest and fees. Removing a tax lien should increase your credit score by several dozen points. Although you need to pay the tax when due, if you pay the lien immediately, future creditors should never know about it because of a 2011 IRS rule about removing tax liens and levies.

Identification

The credit scoring system in the U.S. punishes a credit rating the most when a borrower shows a complete inability or unwillingness to repay a debt, so that the creditor takes heavy-handed collection methods, such as filing a lien. Negatives have a greater effect on good scores than on poor credit histories. If you have at least average credit -- a 680 or better -- you can expect a drop of 100 points or more after the tax lien appears on your credit report, John Ulzheimer, president of consumer education for SmartCredit.com, told the website MainStreet.

Time Frame

The credit reporting bureaus will not remove a tax lien just because you dispute it, only if it legitimately does not belong to you. As long as you owe the tax debt to the government, the Internal Revenue Service puts tax liens on public record. Even if you pay a tax lien, it can remain on a credit report or up to seven years, according to Maxine Sweet, Experian's public education officer..

2011 Changes

In February 2011, the IRS announced changes to how it would handle tax liens -- taxpayers can request the IRS withdraw the lien as soon as they pay it back. This is essentially a pay-for-deletion deal for consumers. As of May 2011, it is still unclear whether the new regulation refers to all tax liens or just those issued after the regulations passed in February. However, there are some reports that the regulation is retroactive, according to Ulzheimer.

Tip

If you see a tax lien that does not belong to you or you paid off the lien, you should dispute it with the credit bureaus. However, first ask the IRS to remove the lien by filling out Form 12277 -- Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. Once the IRS agrees to remove the lien, send a copy of the notice to each credit bureau that reports the item.