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IRS Down Payment and Credit ScoresPaying your federal taxes when they become due is not always an option. When you have other debts to settle and money is tight, you need to consider all your options. An IRS installment agreement is a solution to this problem, but some people may be hesitant because they are unsure of exactly how it works and how it may affect their credit score.

If you can’t pay your taxes and are considering alternatives, here’s what you need to know about IRS installment agreements and how your credit score can be affected.

What is an IRS installment agreement?

When the tax due date arrives, taxpayers are assumed to have already paid their taxes or made a payment on that day. It’s like any other bill you have to pay, but making a lump sum payment isn’t ideal for those who just don’t have the money. Paying the full amount owed may not be possible that day, and avoiding this debt is out of the question, so an installment agreement is an affordable alternative that will allow taxpayers to take care of this debt.

An installment agreement is an option for those who need some time to pay their tax debt. An installment agreement is an agreement between the IRS and taxpayers. This agreement gives taxpayers the ability to take care of their tax debt over a long period of time and ensures that the IRS receives the money it is owed.

The IRS will then automatically withdraw payments on the due date each month, or you will make manual payments on or before the due date each month.

Do IRS Installment Agreements Affect Your Credit Score?

Credit scores are calculated using information about your payment history, debt, length of credit history, new credit, and types of credit accounts you have. Each of these categories counts for a percentage of the credit score, and depending on a certain activity, people can see a negative or positive score change.

For example, a missed or late payment on your student loan, a new credit card account, and even a declined personal loan application can negatively affect your credit score. Paying on time or not applying for new credit will have a positive effect on your credit score. However, it is important to avoid certain activities if you do not want to see a drop in score.

As mentioned above, your credit report will list the debts you owe; However; not all debts will be included in your report. Information on a person’s credit report is submitted or reported by creditors, and the IRS does not report federal tax debt to credit bureaus. This means that an IRS installment agreement does not directly affect your credit score.

Should you apply for an IRS installment agreement?

There are downsides to an installment agreement, but the one benefit that makes this option so appealing to taxpayers is that they can pay off their debt over time without affecting your credit score. If you can’t pay your federal taxes by the due date, an installment agreement may be the best option that will allow you to pay off that debt and avoid further penalties.

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