Does a Levy Affect Your Credit Score?

A levy represents a legal seizure of property initiated to satisfy an outstanding debt. This enforcement action allows a creditor to take control of a debtor’s assets.

Understanding Levies

A levy is a direct action taken to collect a debt, representing the actual seizure of your property. Common types include bank account levies, where funds are directly withdrawn, and wage garnishments, which involve a portion of your earnings being withheld by your employer.

While various creditors can obtain court judgments that lead to levies, government tax authorities, such as the Internal Revenue Service (IRS), are frequent enforcers. Before a levy can occur, the debtor typically receives notice, allowing a period to address the outstanding obligation.

How Credit Reports Work

Credit reports serve as comprehensive summaries of an individual’s financial history. Three major nationwide credit bureaus—Experian, Equifax, and TransUnion—collect and maintain this information. These reports contain details such as payment history, the total amounts owed, the length of your credit relationships, and the types of credit you use. Lenders rely on this data to assess creditworthiness and make decisions regarding loan approvals and interest rates.

Historically, credit reports included certain public record information, such as civil judgments and tax liens. However, significant changes by major credit bureaus in 2017 and by April 2018 largely removed civil judgments and tax liens from credit reports. Bankruptcy filings remain the primary type of public record still appearing on consumer credit reports.

Impact on Your Credit Score

A levy, the act of seizing property, does not directly appear on your credit report or affect your credit score. However, the circumstances that lead to a levy are typically severe and can significantly damage your credit.

If a levy resulted from an unpaid debt, such as a loan or credit card balance, the delinquency and any subsequent collection activity will be reported to credit bureaus. These negative marks, including accounts sent to collections, can remain on your credit report for up to seven years and substantially lower your score. Similarly, if a court judgment preceded the levy, the judgment itself, while no longer consistently reported by all bureaus since 2017, can still be discovered by lenders through public records. The underlying debt that led to the judgment would have already negatively impacted your credit through late payments or charge-offs.

In cases of a tax levy, the tax lien that typically precedes it was once a major factor in credit scores. Before April 2018, federal and state tax liens were reported by credit bureaus and severely impacted credit. Since April 2018, major credit bureaus stopped including tax liens on credit reports, so they no longer directly influence your credit score. However, the existence of a tax lien is still public record, which lenders may access outside of your credit report.

Levy Versus Lien

A lien is a legal claim against property that serves as security for a debt. It establishes a creditor’s right to an asset, such as real estate or a vehicle, if the debt is not paid. A lien is a public record, indicating an outstanding obligation.

In contrast, a levy is the actual seizure of assets to satisfy a debt. While a lien secures the debt by creating a claim on property, a levy takes the property to collect the debt. For example, a tax lien might be placed on your home, but a tax levy would involve the IRS taking funds from your bank account or seizing your wages. The direct impact on your credit score stems from the debt or judgment that leads to a lien or levy, rather than the levy itself.