This year IRS has started a new policy in regards to unpaid tax liens. The good news is if you pay in full they offer to remove it. So the negative impact of tax liens on credit reports can be removed. So you think what is new?  Well before this year even when you paid a tax lien in full your credit report would still keep the record for 7 years before it could be completely removed. Of course once you made the payment it would reflect as it was released but it would remain there for seven years. And whether it was released or not it would have a negative effect on your credit. In fact tax liens are one of the major negative impacts to FICO.

So the new incentive from IRS is that if you pay your liens in full then they will be erased from your credit file therefore you will not have negative consequences. All three major credit reporting agencies: Experian, Equifax and Trans Union have confirmed this agreement with IRS. So IRS is betting on people who  want to clean their credit report will be more willing to pay in full and erase the negativity from their records.

One can argue that if negative information such tax liens can be erased why not other negative items remain. Why wouldn’t the rule from IRS spread to any other negative items on the credit report.

On the other camp lenders and other credit providers are claiming that by cleaning up the credit report they could mistakenly extend credit to someone who might in fact not be eligible or ready to be granted the benefit of a creditline. And in fact if the tax liens is the only negative item on the report  and is fresh then by removing your credit score will jump up by quite a lot.

Of course there is an argument from those who have been wrongfully or for excusable situation been  slapped with the negative tax lien. This would clear up the situation. And it is true that those who should not be eligible for credit would most probably have other issues on their credit which will remain.

On another note this rule only applies to those who choose to pay in full and not those under any kind of burden or those who negotiate into a settlement.  So not everyone who pays their tax lien off to IRS will be benefiting from this pardon or advantage. So those who cannot afford to pay the lien in full in one payment would have to live with 7 years of negative impact  on their credit.  So are we saying this rule is really for the well to do and the rich who can afford  to pay off their lien in one shot? And in fact if someone is wealthy why would they even end up in tax lien situation. Either way I think it is a good strategic and marketing effort from IRS to encourage those who can to pay up their taxes overdue. Keep in mind if you have liens on your credit report they will not automatically be removed when the time is up but as a consumer you need to request the removal. So if you have any liens tax or otherwise make sure to check your credit reports from all three bureaus and request removal when the deadline arrives.

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