Can a Lien Affect Credit?

Types of Liens

Many reasons to file a lien exist. State and federal governments can levy tax liens as a matter of law if you fail to pay your taxes, while a contractor can file a mechanic's lien for the amount of any outstanding debt you owe. Moreover, a court that returns a judgment against you can file a judgment lien, and a divorce judge can impose a lien for your former spouse's share of equity in your house. The lien gives the party that filed it an interest in your property, and in some cases, the lien holder can force you to sell the property to satisfy the claim.

The easiest way to satisfy a lien is to pay the money you owe or work out a payment plan. Having done that, you should file a "paid in full" statement with the county recorder to have the lien released from the title. If the lien was filed erroneously or you wish to dispute it, you can file a petition in county court to have it withdrawn or, if it is a tax lien, petition the IRS or the state tax department to withdraw it. It is much more difficult to dispute a lien than it is to file one.

A lien is a matter of public record, and as such, ends up as a negative item on your credit report. It can remain there as long as the debt is unpaid, and a lien that has been released because you have satisfied it will still appear for seven years. Credit reporting agencies, however, will erase a lien if it is withdrawn, which can happen for procedural or other reasons. For example, the IRS must withdraw a tax lien if it fails to follow the correct procedures when filing it, agrees to a payment plan or will receive the money faster by withdrawing it.

The impact that a lien has on your credit score depends on several factors, including your payment history, your total debt and available credit and the amount of time you have maintained a positive credit history. If you are otherwise financially responsible, it may not have a devastating effect, but it is always in your interest to have it erased. If you notice a withdrawn lien on one of your yearly credit reports, or a released lien dating back seven years or more, send a letter to the agency on whose report you found it and request that they remove it.