Credit Score Basics > Does owing taxes affect credit score?

Does owing taxes affect credit score?

Wollit Team2 minute read · Updated 18th September 2024

No, simply owing taxes in the UK does not directly affect your credit score. However, ignoring tax debts can lead to legal actions that can indeed harm your credit. Here is how it works.

What actually affects my credit score?

Your credit score is a number that is supposed to show how you behave as a borrower. It is calculated by three companies (Experian, Equifax, and TransUnion), and it is based on things like:

Whether you pay your bills on time.
How much of your available credit you are using.
How long you have had credit accounts.
How many different kinds of credit accounts you have, like loans or credit cards.
And even how often you apply for new credit or if you’ve registered to vote.

How could tax debts affect my credit score?

The good news is that owing taxes to HM Revenue and Customs (HMRC) does not directly affect your credit score. When you owe money to HMRC, it is not considered borrowing money. You haven’t taken out a loan; you simply owe taxes. Also, HMRC does not report tax debts to credit agencies. This means that your tax debts will not show up on your credit report or impact your score.

However, while tax debts themselves do not affect your score, certain actions related to unpaid taxes can have consequences.

If you continue to ignore the debt, HMRC can take further action, like sending your case to a debt collection agency or taking legal steps to recover the money. If HMRC takes legal action against you and gets a County Court Judgment (CCJ) for the debt, this will appear on your credit report and hurt your score.

In extreme cases, HMRC can declare you bankrupt due to unpaid taxes. This can harm your credit score even more.

Can my tax debts affect my loan applications?

While tax debts do not show up on your credit report, they can still impact your ability to get loans in indirect ways.

Lenders often look at your overall financial situation when deciding whether to approve a loan. If you have significant unpaid tax debts, lenders may see you as a higher risk.

And as we mentioned already, if HMRC takes legal action against you for unpaid taxes (like getting a CCJ), this will appear on your credit report and make it harder to get loans in the future.

Ultimately, 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.