Should IRS Issues Arise, Credit Repair May Be Best

Tax time can be extremely stressful for many consumers simply because they may have a lot of uncertainty about their finances when they're waiting to hear from the IRS, and if the agency reports back that the filer owes money, it might be a good time to go back and look into some credit repair tactics that may be helpful overall.

While taking the time to work at improving a credit score won't directly help anyone with their taxes, it will be a boon to those whose finances need to get reconfigured overall, and therefore potentially help them better deal with a big bill from the IRS. Fortunately, there are a number of ways in which consumers can improve their credit in such a way that they can cut their debts and potentially improve the interest rates they're able to receive on their accounts.

Where to start with credit repair
In general, there are two major factors that most consumers deal with when their credit has taken a bit of a step back. The first is that they have simply missed a payment or two in the recent past, for whatever reason. A person's payment history makes up 35 percent of his or her total score overall, and as a consequence, the ability to stay current is vital at any time, but may be even more important when other financial issues like a burdensome tax bill needs to be addressed.

This is true for two reasons. Obviously, late payments can significantly lower a person's credit standing and endanger many aspects of their finances as a result, but in addition, it likely leads to penalty fees and higher interest rates on the accounts they already have, which can make a precarious situation even more troubling. And unfortunately, there isn't much consumers can do to fix these missteps apart from continuing to make all their payments in the future on-time and in full. This will serve to show lenders that any such mistake in missing deadlines was an isolated incident, and that the borrower has their finances in order.

The other major factor that leads many people to have diminished credit scores and significantly more financial worries is that they simply carry too much debt on their various credit cards. Many consumers know all too well how much stress big credit card bills can bring to their lives because even the minimum allowable payments are often quite large, but in addition to those financial concerns, there is also the fact that this too can significantly diminish one's previously good credit score.

The amount of debt being carried at any one time versus the total value of all allowable limits across all accounts is known as the "credit utilization ratio," and makes up another 30 percent of a person's score. As a consequence, the more debt owed, the bigger the hit to one's credit standing. In general, lenders only want to see borrowers carrying a maximum of 30 percent of their total limits if they want to make sure this aspect of their scores is as high as it can be. Therefore, those whose debts exceed that level may want to start making larger payments into their balances to scale back their balances and put this portion of their scores to rights. This will likewise help to reduce borrowers' monthly obligations so that more money can be put toward whatever tax burden they may face. Ideally, when undertaking such a move, borrowers may be able to pay their debts down to zero, which will free them of whatever minimum balances they had been facing previously.

Staying healthy after fixing these two issues
There are three other aspects of a person's credit score that can also have similar effects on their overall finances by making credit more affordable if they try to keep them healthy. For instance, credit mix — the number of different account types held in a person's name — makes up another 10 percent of a score, and more variety is considered better. Further, the average length of time a borrower has had all their accounts makes up another 15 percent. The number of inquiries for new credit they've made in the last few months accounts for 10 percent. Making sure to not close old accounts, particularly on credit cards when the balance is reduced to zero, and avoiding making repeated applications for new lines of credit can be a boon in this way.

Those who want to improve their credit standings may also want to make sure they are regularly ordering copies of their credit reports, and checking them over closely for any unfair markings that may be dragging down their scores. If any such entries are found, working with a credit repair law firm may help to rectify the situation.