profit from tax refund

Using Your Tax Refund to Help Your Credit

If you get a big tax refund check from the Internal Revenue Service each spring, you might be tempted to buy a new TV or take a vacation with it. However, your refund check can be a resource to help you build a better financial future for yourself. Using it to help manage your credit usage can save you money now and in years to come.


Paying Down Balances

Taking your refund check and using it to pay down your credit card balances helps you in two key ways. It saves you money every month, since you won’t be paying interest on the money that you pay off. In addition, it lowers the amount of your credit that you are actually using. Your credit utilization – the percentage of available credit that you use – is a major part of many credit scores, and lowering it can help your score. Owing less also reduces the risk that you will have trouble paying your bills in the future.


Funding a Secured Card

Getting started with credit – or rebuilding a consistent payment history – can be challenging. To be approved for additional credit, most lenders will want to see that you have other credit accounts. One way to jump-start your credit is by using your tax refund to fund a secured card account. Your credit line is based on the amount you deposit on the card. The deposit is typically between a few hundred and a thousand dollars, but every card issuer is different.


Investing in Your Finances

Your tax refund can also help you manage your money more effectively. You might choose to use some of it to build an emergency savings so you can rely less on your credit in the future. If you’re looking for options to invest more aggressively, you can also meet with a financial advisor who can provide you with investments strategies for meeting your goals.


Eliminating Future Refunds

Once you deposit your refund check, you might want to make sure that you never get another one. Getting a tax refund means that you’re letting the IRS use your money all year without paying you any interest. You can work with your employer’s payroll department to have less tax taken out of your paycheck, leaving you with a little more money each pay period. Using that money to pay your bills down as they come due or to reduce the amount of credit you use may help your credit.



About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.


This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.