Improve Credit

How Your Tax Refund Could Improve Your Credit Score

A tax refund is a golden opportunity to give your finances a boost, and one of the most effective strategies is to focus on your credit score. You can use your tax refund to improve your credit scores by paying down debt, bringing debt payments up to date or starting an emergency fund to protect yourself from surprise expenses.

With strong credit, you'll be more likely to qualify for loans, credit cards and even an apartment lease. You'll generally receive more competitive interest rates, too, saving you money over time.

The average tax refund for the 2019 filing season was $2,975, according to the most recently available data from the IRS. That's a solid amount to put toward improving your finances.

Here's how to fortify your credit using a tax refund.

Pay Down Debt

Using your refund to pay down revolving credit card balances is one of the best ways to boost your credit scores in a flash. That's because as you knock out debt, your credit utilization ratio—the percentage of available credit you're using—drops too. This ratio plays a major role in determining your credit scores.

Experts recommend keeping your utilization ratio below 30%, but for top scores, below 7% is ideal. To help improve credit, use at least a portion of your refund to make a dent in your debt, and keep your utilization low going forward.

If you have multiple credit cards, prioritize paying off the ones with the highest interest. That way you'll get the added benefit of saving money on interest charges.

Catch Up on Late Payments

If you recently missed a credit card or loan bill, you may be able to use your tax refund to catch up and avoid a hit to your credit scores.

Credit card issuers typically don't report late payments to the credit bureaus until a full billing cycle, or about 30 days, has elapsed. Use your tax refund to make a payment before those 30 days are up, and you may avoid a late payment appearing on your credit report. That's crucial, because payment history is the most important factor in your credit scores.

Additionally, your issuer can charge you up to $29 in fees the first time you pay late, and $40 if you pay late again within the next six billing cycles. But if you don't regularly miss payments and you can catch up right away, the card issuer may waive the late fee.

Consider Applying for a Secured Card

Maybe you're looking to build credit from scratch, or to bounce back from a blow to your credit scores. Your tax refund can give you the flexibility to open a secured credit card, which can help you establish credit history with regular, on-time payments.

Secured cards work similarly to traditional credit cards, but they require a refundable security deposit that typically becomes your credit limit. This deposit acts as collateral for the card issuer, protecting it in case you don't keep up with payments.

You don't even have to use your full tax refund to open up a secured card. You can usually choose your deposit amount, which for many cards starts at $200.

Secured card issuers typically report your payment history to one or more of the three major credit bureaus (Experian, TransUnion and Equifax), so responsible use can help you build a positive credit history. That means making all payments on time, using as little of your available credit as possible and paying off your charges in full every month.

Build an Emergency Fund

Starting or growing a savings account for emergencies won't have an immediate effect on your credit scores. But it will safeguard your scores from the effects of going into debt to cover an unforeseen expense, like a medical bill or car repair.

The ideal amount to save depends on the predictability of your income and expenses, and on your individual lifestyle. A healthy emergency fund generally should cover three to six months of basic expenses, but you might decide you'd feel secure with more or less. Your tax refund can give you a jump-start on your savings account, and you can contribute a small amount monthly thereafter to hit your goal.

Once you build your savings, you'll be able to avoid using a credit card in a pinch. But once you've dipped into your fund, make sure to replenish it as soon as you can.

Put Your Tax Refund to Work

A tax refund might be the biggest windfall you receive this year, so use it wisely.

While you can—and should—spend a portion of it on something you enjoy, make sure the majority of your refund helps you make progress on financial goals that would have been difficult to achieve otherwise. Strong credit is one of the most powerful financial tools at your disposal. Make improving it your focus at tax time.

How Good Is Your Credit Score?

300 credit score301 credit score302 credit score303 credit score304 credit score305 credit score306 credit score307 credit score308 credit score309 credit score310 credit score311 credit score312 credit score313 credit score314 credit score315 credit score316 credit score317 credit score318 credit score319 credit score320 credit score321 credit score322 credit score323 credit score324 credit score325 credit score326 credit score327 credit score328 credit score329 credit score330 credit score331 credit score332 credit score333 credit score334 credit score335 credit score336 credit score337 credit score338 credit score339 credit score340 credit score341 credit score342 credit score343 credit score344 credit score345 credit score346 credit score347 credit score348 credit score349 credit score350 credit score351 credit score352 credit score353 credit score354 credit score355 credit score356 credit score357 credit score358 credit score359 credit score360 credit score361 credit score362 credit score363 credit score364 credit score365 credit score366 credit score367 credit score368 credit score369 credit score370 credit score371 credit score372 credit score373 credit score374 credit score375 credit score376 credit score377 credit score378 credit score379 credit score380 credit score381 credit score382 credit score383 credit score384 credit score385 credit score386 credit score387 credit score388 credit score389 credit score390 credit score391 credit score392 credit score393 credit score394 credit score395 credit score396 credit score397 credit score398 credit score399 credit score400 credit score401 credit score402 credit score403 credit score404 credit score405 credit score406 credit score407 credit score408 credit score409 credit score410 credit score411 credit score412 credit score413 credit score414 credit score415 credit score416 credit score417 credit score418 credit score419 credit score420 credit score421 credit score422 credit score423 credit score424 credit score425 credit score426 credit score427 credit score428 credit score429 credit score430 credit score431 credit score432 credit score433 credit score434 credit score435 credit score436 credit score437 credit score438 credit score439 credit score440 credit score441 credit score442 credit score443 credit score444 credit score445 credit score446 credit score447 credit score448 credit score449 credit score450 credit score451 credit score452 credit score453 credit score454 credit score455 credit score456 credit score457 credit score458 credit score459 credit score460 credit score461 credit score462 credit score463 credit score464 credit score465 credit score466 credit score467 credit score468 credit score469 credit score470 credit score471 credit score472 credit score473 credit score474 credit score475 credit score476 credit score477 credit score478 credit score479 credit score480 credit score481 credit score482 credit score483 credit score484 credit score485 credit score486 credit score487 credit score488 credit score489 credit score490 credit score491 credit score492 credit score493 credit score494 credit score495 credit score496 credit score497 credit score498 credit score499 credit score500 credit score501 credit score502 credit score503 credit score504 credit score505 credit score506 credit score507 credit score508 credit score509 credit score510 credit score511 credit score512 credit score513 credit score514 credit score515 credit score516 credit score517 credit score518 credit score519 credit score520 credit score521 credit score522 credit score523 credit score524 credit score525 credit score526 credit score527 credit score528 credit score529 credit score530 credit score531 credit score532 credit score533 credit score534 credit score535 credit score536 credit score537 credit score538 credit score539 credit score540 credit score541 credit score542 credit score543 credit score544 credit score545 credit score546 credit score547 credit score548 credit score549 credit score550 credit score551 credit score552 credit score553 credit score554 credit score555 credit score556 credit score557 credit score558 credit score559 credit score560 credit score561 credit score562 credit score563 credit score564 credit score565 credit score566 credit score567 credit score568 credit score569 credit score570 credit score571 credit score572 credit score573 credit score574 credit score575 credit score576 credit score577 credit score578 credit score579 credit score