Removing tax liens hurt my credit score?
- This topic has 1 reply, 1 voice, and was last updated 9 years, 10 months ago by
.
-
Posts
-
My credit score was above 700 despite having two old tax liens against me with over $150k on both. I was working very hard last year to improve my score, and put in considerable efforts to get these lies paid and removed.
Finally, after paying them I got one removed completely, and the other was changed to “Released”. Two month later my credit score plunged 30 points and is now below 700!!
Wasn’t paying these tax liens supposed to make my credit standing better?
Anyone?
Sad but often the case…
Sometimes paying old debts can actually reduce your score for a certain period of time, even though your credit standing is better!
Enigma? Not so. Here’s why:FICO and similar credit scoring systems put an emphasis on recently reported information. In fact, 70% of your FICO score is determined by the previous 2 Yrs activity.
When the FICO formula scans the items on your report, it determines the weight of each item according to its age, according to the last activity reported on the item.
When the credit bureaus updated the one of the tax liens to “Released”, the date of last activity becomes more recent and damages your score more severely than what it did before.
Thus, even though you have paid the taxes and the lien is released, you find yourself with a lower score.
This method of credit scoring may seem unfair, but this is how things work and there is nothing you can do about it.
However, don’t forget that creditors often actually review your actual report rather than just using your score. A released tax lien looks much better (from the creditor’s point of view) than a standing lien, REGARDLESS of your score.
What I’m trying to say is that they can reject your request for a loan or credit because of the standing lien (even though you have a good score), but approve you with a lower sore because they see that the lien is released so there’s no danger of you defaulting on them because you need to raise $150k.
As for your credit, it will recover slowly and be higher than what you started with.
Hope this helps.
- You must be logged in to reply to this topic.