May 9th, 2011

Credit Karma Q&A: Credit Over-Utilization and Tax Liens

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Certain actions can negatively affect your credit score, such as hard inquiries, accounts in collections, tax liens, bankruptcies, and foreclosures. And these topics come up frequently in the Credit Advice center, a community-powered Q&A forum. Credit Karma users use the advice center to ask or answer questions all about credit scores, debt, credit cards, loans, and more.

Last week we hard credit inquiries and accounts in collections, and this week we’re discussing how negative actions with credit over-utilization and tax liens affect your credit score.

Here are responses to common questions about credit over-utilization and tax liens.

Credit Over-Utilization

  • Credit card utilization has become a popular discussion topic since it is a simple way to impact your credit score. For example, having a single credit card 100% utilization (“maxed out”) could lower your credit score. Spreading out the balance across multiple cards is an easy change that could help improve your overall credit profile. (What is credit card utilization?)
  • The reason that your score is low is that you have 0% utilization. Credit card companies want to see a credit history with activity. (Low Score, Low Utilization)
  • It all depends on when your credit card company reports it. If you have a balance when they report it, it will show up on the report as your utilization. (Credit Card Utilization)
  • Keep balances below 30% of their limits at all times. (How to increase credit utilization score?)
  • In addition to keeping your credit card balances low, you are in a good position to negotiate for a credit line increase from your issuer to raise your total available credit and further lower your credit utilization rate. Through this method, you can lower your credit utilization rate without needing to apply for new credit and get hit with hard inquiries. (Credit Karma blog)

Tax Liens

  • Any kind of public record, like a bankruptcy, judgment, or lien, could easily knock 100 points off your score, and put you in a very dark hold credit wise for most of the next decade. Avoid it if you can. (Federal tax lien)
  • Make sure that it states that it has been paid or settled to minimize the impact on your report and score. Other than that, it is there for 7 years. (How to remove a tax lien that has been satisfied)
  • You can usually negotiate with the IRS. You can also look into tax settlement companies who may be able to negotiate on your behalf. (Any discount programs for paying taxes past due?)
  • Make sure the state or IRS actually closed the lien. I called the state and they gave me the reference number. You then have to call the government agency that put the lien on. (How do you take a tax lien off your credit report after it is paid?)
  • A lien can be triggered if you owe more than $10,000 in unpaid back taxes and only after the IRS assesses the liability. The IRS sends a notice to demand a repayment, and if you fail to respond within ten days, the IRS can then file a tax lien against your property. (Tax Liens: Don’t Let Taxes Terrorize Your Credit Score)

Need more info? Head over to the Credit Advice center for answers to your pressing credit questions. And while you’re at it, feel free to post a question of your own about credit scores, saving money, auto loans, and more!

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

8 Comments

  1. This post has provided me a good knowledge on Cost Over Utilization and Tax Liens.

    Anonymous at 5:44 am on May 10, 2011
  2. how do I remove a tax lien from my credit report once it is paid, since Wisconsin does not report to credit bureous

    james m. carroll at 3:01 pm on July 28, 2014
  3. Mike

    Hi James – Great question. Tax liens actually are not typically removed from your report as soon as they are paid, but instead stay on for a set period afterward. You can read more here: https://www.creditkarma.com/article/what-is-a-tax-lien

    Mike at 9:08 am on July 29, 2014
  4. This last August, I had a [Paid] tax lien become 7 years old. It was actually a typo error by the IRS; I owed them $317, and they typed in $3170, which automatically generated a tax lien. I contacted the IRS and they removed it within a couple of weeks, one for being a typo, and secondly because I had already paid the amount. It is still on all three credit agencies AND the only thing negetive on my credit report, but still weighs heavily on my score. Do I need to hire one of those law firms that deal with credit repair, or can I solve this myself?

    S. E. Roberts at 2:34 am on November 18, 2014
  5. Charmaine

    Hi S.E., you can try disputing this with the credit bureaus yourself first. We’ve published a guide on this here: https://www.creditkarma.com/article/dispute-credit-report-errors

    Charmaine at 6:58 pm on November 18, 2014

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