Can Unpaid Income Tax Affect Your Credit?
It’s always critical to know what is on your credit report and how it affects your credit score. At times, you may find yourself in a terrible situation, and you have to choose which bills to pay and which ones you can postpone to a later date.
Typically, most people will be in a rush to clear bills that affect their credit score most. The big question is; does owing the Canada Revenue Authority affect your credit score? What happens to your credit report and score if you fail to pay your taxes on time? Does CRA report your unpaid taxes to the credit bureaus? And if they do, what is the overall impact on your credit score?
How Does Unpaid Taxes Affect Your Credit Score?
The Canada Revenue Agency is a government authority, and it will do anything it can to safeguard your privacy. The privacy policy limits the amount of information the organization is permitted to give other organizations such as credit bureaus about the taxpayers. This means that your credit score will not be affected in any way if you owe a small amount in taxes or if you fail to pay your taxes before the deadline.
However, your credit score may be affected if you owe so much to the extent it warrants a court case or if collection agencies are involved. If the accumulative amount you owe CRA is high, then your credit report may attract a tax lien tag which is a negative item on your score.
Although your tax information is supposed to remain confidential, there are times when this information can end up being public, for example, when the CRA files a case against you. Most of the lenders will also ask for your previous year’s tax filing report before they lend you money. Lenders are always careful when giving out mortgages since they don’t want to finance you when CRA can potentially have claim over the home.
What Can You Do to Avoid Harming Your Credit with the Issue of Unpaid Taxes?
A low credit score will affect both your financial and personal life hence the need to avoid the issue of unpaid taxes. A tax lien tag on your report can affect your credit score for up to seven years. The CRA can still lay claim on your assets if you fail to pay your taxes. To avoid reaching this point, you can consider getting a bad credit loan to settle your tax bill and then repay it on time to build your credit score.