Credit Score Basics > Does income tax affect credit score?

Does income tax affect credit score?

Wollit Team2 minute read · Updated 23rd September 2024

No, income tax does not affect your credit score in the UK. HMRC does not report your tax payments or debts to credit reference agencies. Paying more tax won’t improve your credit score, either.

However, failing to pay taxes on time can lead to penalties and legal action, which could eventually lead to a drop in your credit score and hurt your chances to get loans in the future.

Here is how income taxes and credit scores work.

Why doesn’t income tax affect my credit score?

There are many reasons why taxes don’t affect your credit score:

HM Revenue and Customs (HMRC) does not report your tax payments or debts to credit reference agencies. This means that paying or owing taxes will not show up on your credit report.
Payments related to tax credits or any overpayments also do not appear on your credit report and therefore do not influence your credit score.
Paying more or less in income tax is also completely unrelated to your credit score, as lenders care only about your ability to repay a loan and how you’ve behaved with debt in the past.

Basically, since taxes are not debts (even if they might feel like it), they are not used by the credit reference agencies in their calculations and don’t impact your credit score directly.

How could my income taxes impact my credit score indirectly?

Income tax could affect your credit score indirectly in two ways.

First, if you fail to pay your taxes on time, HMRC will add penalties and interest on the unpaid amount. While this won’t show up on your credit report, it can add up – and make it harder for you to repay other debts. HMRC tax debts will also take priority, since they’re the only kind that can land you in jail.

Second, if you continue to miss your tax payments, HMRC may take legal action against you. This could result in a court judgment, which would be recorded on your credit report and then actually hurt your credit score.

Finally, if you’re self-employed, you normally prove your income through your SA302 tax calculation form. This will show both your income and your outstanding tax. If lenders see that you owe unpaid taxes from previous years, they might think you are a higher risk.

However, these are not common reasons to be concerned. As long as you’re paying your taxes on time, lenders and credit reference agencies (Experian, Equifax, and TransUnion) will not care.

At the end of the day, though, what lenders care most about is your credit history.

Luckily, now there are many apps that can help you build and improve credit.

One such app is Wollit. Wollit is an app that reports your monthly subscription as loan repayment, helping you build a history of timely repayments without the risk of getting hit with high-interest charges or going over your card limit. It can even report your monthly rent payment to Experian, adding another line in your credit report that shows lenders you're responsible and pay your bills on time – regardless of your tax situation.