Thursday, April 16, 2009

Liens and your Credit Score

If you do not pay State or Federal taxes or pay a debt owed to a creditor, they can make a claim against your property. This particular claim is called a tax lien, and it is a horrible situation altogether. The property they can claim could either be your home or automobile, and they do this to secure equity in the property for a balance owed. The government or creditor can also seize the property and auction it for unpaid taxes or funds.
What types of liens are there?
Liens can either be voluntary or involuntary. Voluntary liens are based on a contract between a creditor and a debtor, while involuntary liens are just simply given to a person who owes a debt. The different types of liens are:

Voluntary Liens:
• Car loans
• Mortgages
• Security Interests
• Property Improvements
• Personal Property Liens

Involuntary Liens:
• Tax Liens
• Attorney’s Liens
• Judgment Liens
• Maritime Liens
• Mechanic’s Liens (with secured payment on property)

A lien isn't that big of a deal is it?

Basically, a lien is a guarantee that the creditor gets paid before anything else happens. If you want to pay off your mortgage or have money left over when you move, think again. Everything comes second to your lien because of the contract signed or forced upon you. However, you still have to pay off your mortgage in addition to your lien, so there is a possibility you will be in debt and your credit will be damaged from the mortgage and the lien!
How does a lien affect my credit report and credit score?
This type of security interest looks very bad on your credit report. Potential lenders see a lien on file and know that in the past, a creditor had to force you to pay them by taking extreme measures. Unpaid tax liens can stay on your credit report for up to 15 years! The best thing to do is to pay your lien off. It still will remain on your credit report for 10 years, even though this is a long time it is still better to pay it off because there is a chance that it will be removed before the time is up.

How we can help you

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1 comment:

Wilson said...

Hi,

Thanks for sharing such informative post! I feel Some of the biggest negatives to a credit score are bankruptcies, foreclosures and tax lien