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How Long Does a Tax Lien Stay on Your Credit Report?

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Read this lesson and you'll learn how long a tax lien can affect your credit report for. You'll also learn whether there is a way to remove it sooner than later and how you can qualify for the removal.

Tax Liens

What is a tax lien? A tax lien is a legal claim against assets such as your house or other personal property for unpaid taxes. This means that until you pay your unpaid taxes, the tax lien holder has the right to seize your house as payment for your taxes.

Your house can be seized if you have a tax lien
tax lien

Take a look at this scenario.

David finished high school three years ago and has been working full time ever since. He paid his federal and state taxes the first year. But he neglected to pay his federal and state taxes the second year. Now, in his third year, he finds that the government has given him notice of a tax lien for the taxes he failed to pay for his second year of working.

Your Credit Score

What does this mean for David? It means that this tax lien will be on his credit report. And that's not a good thing. When a tax lien is on your credit report, it affects it negatively. There is no concrete number of points that it will bring your credit score down by, but suffice it to say that it impacts it negatively in a large way. So large in fact that many people won't be able to secure any loans based on credit until the lien is removed from their credit report.

How Long Does It Stay?

So, here comes the big question. How long will a tax lien stay on your credit report? According to Experian, one of the major credit reporting services, a fully paid and released tax lien will stay on your credit report for seven years after the date it's been paid. An unpaid tax lien stays on your credit report for ten years.

Also, according to Experian, even if a tax lien is stated as paid and released, as long as it is on your credit report, it can still negatively impact your credit score. It's not as bad as having an unpaid tax lien, but it's still not good for your credit score.

For David, who is still young and needs to build credit, a tax lien on his credit report is not a good thing. He probably won't be able to get a traditional home or auto loan. Getting approved for these loans usually requires good credit. What he can do is to pay off his unpaid taxes. And he does just that. He pays his second year taxes plus late fees, and he also files and pays his third year taxes. David checks his credit report soon after he's paid it and he sees that this tax lien is now noted as paid and released. But it's still on his credit report and will remain so for the next seven years. That's still not good.

How to Remove It

So, is there a way that David can remove this tax lien from his credit report sooner than later? Good news! There is.

The IRS has made a provision that you can take advantage of if you meet certain qualifications. If you qualify, the IRS will withdraw the tax lien, and to the credit agencies, it will seem as if the tax lien never happened.

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