If you expect to get a tax refund this year chances are you have already filed your 2012 taxes. But what if you owe money to Uncle Sam? You likely have procrastinated and will be scrambling to meet the April 15th deadline.
Most people know that missing a mortgage or car payment can definitely lower their FICO Score. But what if you don’t pay your taxes?
Not paying your taxes can result in a tax lien which becomes a matter of public record. The FICO Score takes into account any derogatory public records listed on your credit bureau report. One or more tax liens on your credit report can have a significant negative impact to your score.
The exact impact depends on what other information is on your credit report and on the details of the tax lien(s). For example, a more recent tax lien could have a greater impact than an older tax lien.
Why do tax liens matter? It’s because people who don’t pay their taxes are statistically more likely to not pay other debts. FICO’s research has shown that the segment of the U.S. population with a tax lien on their credit reports had a future bad rate of more than 40 percent. In other words, more than 40 percent of the people with tax liens became at least 90 days past due on a credit obligation within the next 12 months. That’s twice the average for the whole population.
What if your situation is a little different? Let’s say you owe taxes, but you don’t have the funds right now to cover the amount owed. Should you simply not file this year and assume that you can true up the overdue amount next year?
Not a good idea.
By not paying, you’ll likely incur penalty fees and possibly a tax lien. Your best course of action is to contact the IRS and let them know your circumstances. They will help you work out an agreement for paying the IRS what you owe and with a federal deficit over $16,700,000,000,000, and growing, you can bet Uncle Sam wants and needs every dollar owed!
In addition to gaining peace of mind, you’ll also be protecting your FICO Score.
Tom Quinn is the Vice President of Business Development for myFICO, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.