Have you recently obtained a tax refund? In that case, everybody chooses to spend the money on themselves! But you may optimize your credit score with these tax refunds! There are several ways to spend your tax refund and obtain rewards and cashback that will, in turn, boost your credit score. The tax professionals in Denver, CO, demand an outstanding credit score for everything, including applying for a loan to buy a property or a credit card. Hence, increasing your credit score is essential!
You might utilize your tax refund to disburse debt, bring payments updated, or commence an emergency fund to cover unanticipated expenses. With robust credit, you will be eligible for loans and apartment leases. The moderate tax refund during the 2024 tax filing season is $3145, per the IRS. This is one of the best scopes to increase your finances. Below are the ways to boost your credit score using a tax refund.
Table of Contents
1. Utilize Your Tax Refund as a Safety Deposit for Your Secured Credit Card
A protected credit card is distinct from a conventional one, as it can optimize your score and credit history. Nevertheless, you must provide a safety deposit as collateral to obtain the best-protected credit card. You may also utilize your tax refund as a safety deposit for your credit card, and then you may use it to buy items, obtain cashback bonuses, and help boost credit, optimizing your credit score. This is how your tax refund can optimize your credit score.
2. Pay Down Debt
Boosting your credit scores can be done by making additional payments toward revolving credit balances. Your credit utilization ratio will plummet as you knock out debt, and the available percentage of credit will plummet, too! This ratio plays a significant role in deciding your credit scores.
Tax professionals suggest keeping your credit utilization ratio minimal, which is below 30%. However, those with the utmost credit score tend to keep their utilization in low single digits. You may use an approximate portion of your tax refund to dent the outstanding credit card or HELOC debt and keep your credit utilization ratio low.
3. Catch up on Late Payments
Have you recently bypassed a loan bill or a credit card? In that case, you might utilize your tax refund to catch up on late payments and steer clear of hitting your credit scores. Credit card issuers usually don’t report late payments to the credit agencies until a complete billing cycle, or approximately 30 days, has gone. Hence, you may utilize your tax refund to complete the payment before those 30 days are over, and you might avoid a late payment showing on your credit report. A late payment will remain on your credit history for 7 years. Moreover, your issuers may demand a late charge if your payment comes one day later than the due date. You may catch up instantly if you don’t miss payments daily; the card issuer might waive the late charge.
4. Create an Emergency Fund
Initiating a savings account for emergencies won’t quickly affect your credit scores. But it will protect your scores from the effects of going into debt to cover an unanticipated expense, such as car repair or medical bill. The actual amount for the emergency fund depends on your lifestyle and the predictability of your earnings and expenses. It also covers 3-6 months of elementary costs. Your tax refund can help you plunge into your savings account, where you can contribute a tiny amount monthly to achieve your monetary objectives.
Conclusion
Tax season is arriving soon, and you will receive your tax refund if you have already filed your taxes. You may utilize the aforementioned methods to use your tax refund to bolster your credit score.