Learn How Tax Audits May Affect Credit Scores
Credit score repair services across the U.S. keep alerting their clients about the potential damage their credit reports may cause following an audit. Approximately 1.2 million people in the nation had to face tax audits this year, which is an all-time low figure. Consumers tend to spend weeks, even months preparing for their taxes, but during an audit, the preparation time does little good. Getting a tax audit request mail from the Internal Revenue Service (IRS) is not something any U.S. citizen looks forward to.
What happens in a Tax Audit?
The IRS issues a tax audit notification to consumers when they want to confirm the accuracy of the deductions and incomes portrayed in their credit reports. They may issue one of three types of audits – mail, office or field. IRS generally issues an audit via mail, which has to correspond through the same channel.
Can a Tax Audit Affect Your Credit Score?
Your credit report is compiled by each of the three credit bureaus in the U.S — Equifax, Experian, and TransUnion. The IRS is an independent agency and does not report the findings of a tax audit to any of the big three bureaus. However, it may conduct further proceedings to help out the consumers that owe federal back taxes and other penalties. If you fail to pay off the debt, you’ll have to face a tax lien, which would show up on your credit report. An unpaid tax lien remains on your credit report for seven years for paid accounts and 15 years for unpaid accounts. This will dramatically affect your credit score and your financial life.
What are the Possible Consequences?
If you’re not able to avoid a tax lien remark on your credit report and get a low credit rating, lenders would not consider you as a reliable person to lend money to. It will result in financial constraints like lack of credit availability is a likely force to put your financial decisions on the back burner.
Take a look at how low credit leaves an impact on various financial decisions:
You’d either have to pay higher interest rates to secure them or won’t be able to secure them at all.
Health and auto insurance firms will charge higher insurance premiums. Mortgage insurance firms may outright reject your insurance application.
Consumers with low credit ratings take the brunt in the form of higher security deposits, which leaves even lesser scope to save money and come out of a bad credit situation.
Missed Employment Opportunities
It is not an employer’s right to acquire your credit report without your consent, but they may still ask for it and use it as qualifying criteria for the candidature.
Miscellaneous Contracts and Applications
Low credit reduces your chances of getting approval for cell phone contracts, small business licenses, and other facilities by the concerned authorities.
Consult with Credit Repair Specialists
If you can’t avoid the impending consequences of a tax audit, your credit situation can get worse. By consulting with Build My Scores, we can help you resolve such situations and improve your credit rating over a period of time.