Approximately two-thirds of Americans who file an income tax return will receive a refund this year. The tax season is upon us as employers have until January 31 to mail out W-2 forms. With all of their tax forms and information, people can begin filing their returns. Those that receive refunds can use that extra cash to help improve their credit score and overall financial standing. Here’s how.
Pay Off High Interest Debt
Take a look at the interest rates on your debt, especially credit card debt. If you have two credit cards, for example, and one has an interest rate of 25 percent and the other is 12 percent, you can save money and have a positive effect on your credit score by paying the higher card off first. If the amount of your refund covers it, pay it off entirely. If you can pay more than one card, do so and pay off those with the higher interest rates first. Remember, 30 percent of your credit score is based upon the amount of credit card debt you are carrying. Paying off or paying down those balances is enough to help to your credit score.
Pay Off Unpaid Bills
If you have some unpaid bills that need taken care of, use your tax refund to catch up. Paying off these bills will eliminate any recurring late fees and also any negative notations on your credit report. A big part of your credit score is based upon how well you pay your bills on time. If these unpaid bills continue, your credit score will continue to suffer. If you are not able to pay them off, you might want to consider a quick and easy way to catch up. Embassy Loans of Florida offers customers the ability to take out loans using their vehicles as collateral. These car title loans can access quick emergency cash that can be used to pay off debts quickly. Those payoffs will result in a positive impact on a person’s credit report. The key is to make sure that there is a plan to pay off the car title loan.
Establish An Emergency Fund
Another thing that an individual can do with an income tax refund is to establish an emergency fund. Individuals and families should keep three to six months of income in a fund that is to be used only for emergencies. If a person gets laid off from a job, this emergency fund can help the person and his family continue to pay the bills on time. This, of course, has a positive impact on the credit report.