How do taxes affect my credit score?
March 14, 2019
It’s tax season and you know what that means: it’s time to get your financials from the previous year in order. Whether you do it yourself or you choose to have your taxes done by the professionals, you can do either with H&R Block.
The deadline for filing your 2018 tax return is April 30, 2019. Being late to file or not filing at all can have some serious consequences. For example, your credit score could take a hit. If you’ve ever wondered “how do taxes affect my credit score?” – you’ve come to the right place.
What is a credit score?
Let’s start with the basics. Your credit score is a three-digit numerical expression of your creditworthiness, typically ranging from 300-900. Your credit score is an indication of how well you borrow money. The higher your credit score is – the better. If you haven’t checked your score, you can get your free credit score from Borrowell in less than three minutes.
There are numerous factors that make up your credit score. These factors include your payment history, credit utilization (how much credit you use out of the total amount available to you), credit mix, credit inquiries, credit history, and public records/derogatory marks. Your payment history makes up 35% of your credit score, which is the most out of all the factors.
When it comes to payment history — how do taxes affect my credit score?
It depends on your personal situation. If you owe the government outstanding taxes, it’s important that you pay them on time because it can affect your credit score. Interest, penalties, and garnishing your wages are other reasons why choosing to not pay your outstanding taxes is a bad idea. Hindering your future self from borrowing money could be a long-term side effect.
If you owe the government a small sum of money, chances are they probably won’t make a big deal coming after you when it comes to your credit score. Make no mistake they’ll still expect you to pay the money you owe, but it’s unlikely it will hurt your credit score.
If you’re in a situation where you owe a large tax bill and the CRA decides to take you to court, then yes, your taxes can affect your credit score. Your credit score can take a long time to rebuild, so it’s important to try and avoid long-term impact.
What if I owe the CRA money?
If you owe money to the CRA, you should get in touch with them immediately. If you can’t pay the amount, there are taxpayer relief programs available for Canadians. They will work with you to create a payment plan that’s in the best interest of all parties and it won’t affect your credit score. Another option is to pay off your outstanding tax balance with a low-interest personal loan. It’s important to weigh all the options available to you so you can do what’s best for you and your specific situation.
If you haven’t filed for a number of years, or you’re scared of the interest and penalties might be, looking into voluntary disclosure programs is also an option. This option can help mitigate interest, penalties, and hits to your credit score.
The last word
At the end of the day, your unpaid tax bill can affect your credit score. It’s important to be upfront with the CRA if you’re unable to pay this amount. Doing so will ensure that you are not affected long term when it comes to your borrowing capabilities.
Borrowell helps people make great decisions about credit. With its free credit score and report monitoring, automated credit coaching tools and AI-driven financial product recommendations, Borrowell empowers consumers to improve their financial well-being and be the hero of their credit. Join the 850,000 Canadians that have checked their credit score through Borrowell. Get your free credit score now.