Notice a change in your credit score? Here are five ways that taxes can pay a big role.
While many people walk away with a tax return, those who are self-employed usually end up paying into the system. Unfortunately, not all tax brackets are created equal, and you may end up needing to pay more than you thought you would. Taking out a payday loan will begin to affect your credit if you don’t pay it off within the time allotted. Don’t make that mistake. Instead, try getting on a payment plan with the IRS.
Often, you bank on a refund check and find out that it won’t make it into your account for another two weeks. You ask for an advance on it through your bank. This is called a ‘refund anticipation loan’. These usually come at a pretty high cost. If you do ask for one, ensure that you give yourself enough time to pay it back. If your refund check comes in a little late, a default payment could go on your credit report.
If you owe the IRS more than $10,000 and you don’t resolve it quickly, they will automatically file a tax lien against you, and that falls into the ‘seriously delinquent’ categories in your credit report.
If you owe the IRS too much, you may end up needing to file bankruptcy. Clearing the board on your debt through bankruptcy is a ‘get out of jail free card’ that stays on your credit report for anywhere between 7 and 10 years.
In rare cases, worth about $21B annually, you’ll go to file your tax return and be made aware that someone else has done it for you. When this happens, you’ll need to place a fraud alert on your credit reports. This makes applying for credit services in the future, including utilities, a big pain. Go to all lengths to protect your identity. It way pays your dividends later.