Credit Building

What taxes affect your credit score?

Jan 25, 2023

Tax can be taxing. There’s a lot to keep an eye on and pay. Council tax, income tax, car tax! Do your monthly tax payments help towards your credit score, and do missed payments show up on your credit report and make it harder to get a loan? Read on to find out more about how taxes affect your credit score.

Does paying council tax affect your credit score?

Unfortunately not. Your credit report is interested in how well you repay loans and manage credit. Paying your council tax is not like a loan repayment, even if you pay it monthly. So it won’t be considered the same as credit agreements that you’re repaying. This means it doesn’t show up on your credit report, and will not count towards your credit score.

What could seriously help your credit score though is making sure you’re registered to vote on the electoral roll. Equifax, Experian and TransUnion (the three main credit reference agencies in the UK) are responsible for creating your credit scores and they look for your address history via the electoral roll. Register to vote here if you haven’t already.

Does not paying council tax affect your credit score?

No, lenders have no visibility on your council tax payments whether you pay them, are late paying, or miss them altogether. In fact, even if your local council takes you to court, it won’t show because non-payment is considered a criminal matter, not a civil one, so it’s dealt with at a magistrates court. However, that’s not a reason to not pay your council tax!

No penalties or fines that you’re given through the magistrate court proceedings will be revealed on your credit report and therefore won’t affect your credit score directly.

But you should be aware that if you do go to court, then your local council could be granted a liability order by the Magistrate. This means that the amount you owe (plus any fees the court procedure adds on) could be deducted from your wages and would show up on your payslips. So if in the future you want to apply for credit, this could potentially affect a lender’s decision to accept or reject you (if payslips are a requirement).

Does tax credit overpayment affect your credit score?

No, tax credit payments and overpayments are not included in your credit report and have no effect on your credit score. Tax credits are sometimes given to people with low incomes, who have disabilities, or who have dependents. The government tops up incomes to help with daily living costs for people struggling with money or living on minimum wage.

If you receive tax credits and your circumstances change to the point where you would no longer be entitled to them, or to a smaller amount, you need to inform HMRC.

If you don’t you could find that you are overpaid for tax credits and then you will owe that money back to the government. At that stage you will either need to pay the full amount owed in one go, or you may have your ongoing tax credits reduced to cover the debt. 

Does paying car tax monthly affect your credit score?

Much like with council tax, car tax is not considered credit. So it doesn’t show on your credit report or affect your credit score, whether you pay it or not. If you fail to pay your car tax, for example if your direct debit is cancelled due to an expired MOT, you’ll need to rearrange it or you could be fined £80 and asked to pay for the time that your car is untaxed.

If you don’t pay your fine on time, your vehicle could be clamped or even towed and crushed. Your details could also be sent to a debt collection agency, at which point you might find that your credit score could be impacted. It is worth mentioning that it is illegal to drive an untaxed vehicle.

Does not filing taxes affect your credit score?

Good news for those who manually file their income tax (i.e. if you’re self-employed): this is not considered to be credit and does not show on your credit report. Your monthly payments won’t appear on your credit report and any missed income tax payments will also not be visible to lenders.

If you think you might not be able to pay your income tax, it's important to tell HMRC before deadlines pass as they are more likely to be able to help  you at that stage than afterwards. You can sometimes get a Time to Pay agreement which gives you an extension to pay off your owed tax in instalments with interest.

If you don’t pay your taxes and don’t inform HMRC, you will be given penalties after 30 days, 6 months, and then 12 months. The penalties are 5% of what you owe (plus interest if you pay them in instalments). It’s possible to be prosecuted or even sent to prison for not paying your taxes, but that is usually in extreme situations! 

Things that HMRC can do if you don’t pay your income tax include:

  • Take the matter to a magistrates court

  • Take your things and sell them at auction

  • Take money directly out of your bank, but only when you owe more than £1,000

  • Shut your business or make your bankrupt

Bankruptcies will show on your credit report and can stay for six years. At that stage you may find that not paying your taxes does actually affect your credit score!

How can I grow my credit score?

Loqbox can help with that. We’re a credit-builder that focuses on making you feel a bit brighter about money. If you’re looking for a proven way to improve your credit score, take a look at how we can help:

You can boost your credit score just by paying your simple £2.50 a week membership. Activate Loqbox Grow to get started. Read more about it here.

You can also grow your credit score and a pot of savings at the same time with Loqbox Save.

And if you’re renting, you can now build your credit history with Loqbox Rent, no matter if you pay that rent to a landlord, letting agency, council, family member or friend.

Some of our members have seen an increase of up to 300 points in the first three months of using all three tools. So if you’re ready to start improving your score, we’re here to help you.

Start building your credit today!

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