With Tax Day just a few short days behind us, those who filed on time are more than likely already thinking about what they will get back. Statistics show that approximately two-thirds of Americans who file taxes on time will receive a refund. While most consumers make plans for how they are going to spend the money on vacations, home improvements, a new car, consider using your income tax refund to improve your credit.
Using your tax refund to improve your credit and overall financial well being can be more rewarding that you think. When you receive your refund, start improving your credit by paying off as much of your high interest debt as possible. For example, if you have more than one credit card on which you are carrying a balance, pay down the card with the highest interest rate. If you are able to pay off the balance, consider closing the account. Paying off the account will improve your credit. You will hopefully be able to open a new card with a more favorable interest rate that will save you money in the long run. As explained on previous occasions, 30% of your credit score is based on the amount of debt you have. If you are able to pay off an entire account, your score should improve drastically.
If you are able to pay off an entire credit card balance and still have money from your refund left over, next consider paying off any of your unpaid bills. If you have negative accounts on your credit report from unpaid bills, pay off what you can to improve your report. Part of your credit score is based on your ability to pay. While paying off past due balance, won’t erase a negative credit history, it will improve your report moving forward.
If you still have money to spend, considering starting a savings account or emergency fund. Having money in savings in case of emergency is a great way to avoid financial trouble.
If you are in need of assistance or advice regarding your credit report contact SmithMarco, P.C. for a completely free case review.