With a tax lien on your credit report your score will be dramatically affected. You should take action to erase this mark from your report.
The first step is to have the bureaus validate the lien. You need to send each bureau a dispute letter.
Unfortunately mistakes do happen on your report; there are estimates that 1 in 4 people have an error on their report.
When your letter is received then the bureau will contact the state or federal government and ask them to verify the debt. If it is verified then you will have to negotiate payment to remove it.
It may be in your best interest to talk with a tax negotiator to work out a settlement with the government. You can often pay a reduced amount, and once paid you can remove it from your report.
A tax lien can be collected upon for 10 years, and will stay on your report for 7 years once it is paid. If not paid then you can be reporting a tax lien on your report for a considerable amount of time.
Once you pay your lien in full, we suggest you wait 3 months and then dispute the mark with the bureaus again. It has been learned that once payment is made the tax departments will frequently ignore validation requests from the bureaus.
Thus your lien will not be verified and the bureaus will remove it from your report. Additionally if this mark was make in error then send any documentation along with your dispute letter to prove that.
Repayment
The IRS and state government often accept partial payment. To propose this to them you will make an offer in compromise, often called an OIC.
The government will look at; your ability to repay, your income, your assets, and what they expect to recover. Additionally it will help your chances of acceptance, if you attach a letter showing financial hardship.
It may be in your interest to hire a tax attorney or negotiator to help negotiate a repayment amount. It is not absolutely necessary but nonetheless a good idea.
In sum, you can remove a tax lien and other negative marks from your credit report. You do not just have to live with bad credit.
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