Does an IRS Audit Affect My Credit Score? | LendingTree (2024)

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No, an IRS audit does not directly affect your credit score. The Internal Revenue Service (IRS) doesn’t report tax debt to credit bureaus, so it won’t influence your credit (unlike other kinds of debt like credit cards or loans).

Even if you owe money to the government, your credit score won’t fall. Also, audits don’t necessarily mean that you owe money — the IRS may just be confirming that you’ve paid what you owe.

The IRS does not report to credit bureaus

The three major credit bureaus gather and analyze information from lenders and other sources to create comprehensive profiles of your borrowing history, including your credit score. Credit scores factor in your payment history, credit utilization ratio and other parts of your credit history. Prospective creditors will review your credit reports and credit scores when deciding whether to approve a loan, and that information may also affect the interest rates you receive.

That system relies on creditors to provide information about your loans, payment history and various debt details. The IRS doesn’t report to the credit bureaus like a bank or loan company, so tax debts and IRS audits don’t contribute to a credit report or credit score.

Tax liens and credit reporting

If you’re in tax debt and fail to pay, the government can pursue a federal tax lien on your property, which secures the debt. The government will remove the lien If you agree to a payment plan and pay off your debt. If the debt remains unpaid, the government can seize your assets. To avoid that fate, you can consider a personal loan to pay your tax bill.

As of 2018, tax liens no longer appear on your credit report, so they no longer affect your credit score. In the past, that information could hurt your access to credit, but lenders won’t be able to see it — unless they research public records. Either way, a tax lien won’t hurt your credit score.

What is a tax audit?

The IRS examines some taxpayer returns to confirm that they were reported legally. The IRS chooses returns to audit by random and by algorithm. It also may audit returns that are related to other returns already selected for an audit.

Most audits are conducted on returns filed within the last two years, but the IRS can review returns filed up to six years ago.

Here’s how the audit process generally plays out:

• You’ll receive a letter about the audit. If you’re selected for an audit, the IRS will contact you through the mail. You won’t ever receive a phone call starting an audit — those calls might be scams.
• The IRS will review your information. Depending on the size and complexity of your tax returns, this step could take a while. The agency closely examines your return. You have the right to representation during an audit, so consider hiring a tax expert if you want help during this process.
• You’ll provide tax documentation. In many cases, the IRS will request that you submit additional information related to income, expenses and potential deductions.
• The IRS will notify you about the results. You’ll eventually be informed of any potential changes to your tax return, which you’ll have the chance to accept or appeal. It’s also possible the IRS will have no changes and ultimately accept your return.
• If needed, you’ll have to pay any extra taxes. If the IRS adjusted your return and you owe taxes, you’ll have to pay them — otherwise, you could eventually have a tax lien placed on your assets.

Can taxes impact your credit score?

Taxes don’t impact your credit score, even if unpaid, unless they affect your other finances. If you can keep up with loan and credit card payments, you should be fine — but if your unpaid taxes stress your budget and lead to missed payments, your credit score could fall. If you use credit to pay your tax bills, it could impact your credit as well.

How credit scores can fall

If you’ve noticed that your credit score has fallen, there could be several possible reasons. Sometimes those drops are minor and temporary, but certain issues could drag down your score for years. Here are some of the ways credit scores fall:

• Missed loan payments. Your payment history, which makes up 35% of your credit score, is the biggest factor. Missing payments on credit accounts will cause your credit scores to decrease.
• Elevated credit usage. Ideally, you should be using under 30% of your combined available credit lines. Your score could fall if you’re taking on more debt than that per month.
• Too many new accounts. Hard inquiries during the credit application process hurt your score a bit, and if you open too many accounts in a short period, your score will be lower.
• Serious negative events. If you’ve had a debt sent to collections or filed for bankruptcy, it will stay on your credit report for seven years, in most cases. It will significantly impact your credit score as well.

Fortunately, you can improve your credit score over time. Making regular, on-time payments and properly managing your credit usage will help your score recover. Use a personal loan calculator to understand your monthly payments and total interest paid over time.

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