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5 ways taxes can impact your credit

Author: Lisa Coleman
Published: Mar 6 2014

Many people don't realize it until it's too late, but having good credit is absolutely essential in the adult world. Bad credit can prevent a person from taking out a loan or cause them to have higher interest rates, and even individuals who don't want to borrow money will face difficulties. Those with less-than-perfect credit may have to pay high deposits for utilities and cell phones, and some employers can even legally deny employment to those with bad credit. What's even worse is the fact that taxes, something that everyone has to deal with, can actually affect a person's credit.

Taxes can impact your credit

1. Identity Theft

One of the scariest ways that a person's credit can be affected due to taxes is identity theft. Sadly, tax time means that a person's financial and personal information will be traveling through the mail or even available online. This makes it a great time for identity thieves to run amok. In fact, statistics show that the IRS paid out $3.6 billion in fraudulent tax refunds in 2013 alone.

Unfortunately, once a person's identity has been stolen, their credit can quickly go down the tube, and those who overspent during the holiday anticipating a large refund will have additional issues when other creditors start knocking on their door. If a person is notified by the IRS that their refund has already been issued, a person should quickly let them know what happened and place a freeze on their credit report.

2. Tax Liens

Another huge way that taxes can affect a person's credit is through a tax lien. If an individual owes a large amount or fails to make payments, the IRS may place a lien on their credit report. Unfortunately, these liens are looked at as one of the most negative marks possible on a credit report.

When a person is faced with a lien and is in trouble with the IRS, contact Instant Tax solutions, or another tax solutions company to obtain help. In these instances it would likely be very beneficial. These companies often employ certified public accountants, IRS legal counsel and even former IRS auditors. The use of these services often allows people with tax issues to avoid the consequences, which include bad marks on their credit that can follow difficulties paying taxes and tax liens.

3. Needing Additional Loans

It's an unfortunate truth, but many people have to take out loans to assist in the paying off their taxes. These loans often have high interest rates, and if not paid off quickly, a person could soon find that these loans also have a negative effect on their credit. If it's absolutely necessary to take out a loan, it's essential to search for one with the best rates and terms and then pay it off as quickly as possible.

4. Bankruptcy

One of the worst possible outcomes that taxes can have on a person is bankruptcy. When an individual simply cannot pay their taxes, they sometimes feel as if they have no other choice than to declare bankruptcy. This is equivalent to the death of one's credit, so it's imperative to consider some of the aforementioned tips before settling on this extreme measure.

5. Credit Card Effects

Many individuals use their credit cards to make tax payments to the IRS, but they often fail to remember that, even though it's their credit card, they are essentially still only taking out a loan. If high interest rates hit them hard after this, they may end up worse off than they would've had they just tried to set up a payment plan with the IRS in the first place. Failing to make timely credit card payments can quickly ruin someone's credit, and even if it doesn't, they'll end up paying much more than their original tax burden.

It has long been said that there are only two things certain in this life: death and taxes. Luckily, far more people have to deal with the latter on a yearly basis, but taxes can still make life incredibly difficult on people. On top of having to fret about paying sometimes high taxes in an economy that's still in a slow recovery, individuals also have to worry about the effect these taxes will have on their credit. Luckily, some of the aforementioned tips can go a long way in keeping one's credit healthy even in the face of tax season.

Blogger Lisa Coleman shares some tips about how credit can be effected when in debt with the IRS. When in trouble with the IRS, contact Instant Tax solutions, or another solutions company, to obtain the help needed for such tax burdens.

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