Great Advice for Grads 2020

How to Use Your Tax Refund to Polish Your Credit

BY BEV O’SHEA

If you’re looking to build credit or help your score recover from past mistakes, a cash infusion can help — especially if you knowwhere to target it for maximum impact. About half of Americans expect an income tax refund this year, according to a NerdWallet survey of 2,002 U.S. adults conducted by The Harris Poll. Those expecting a refund estimated they will receive $2,207, on average. A couple thousand can make a big improvement in your finances. Here’s how to use a refund to polish your credit. DIVIDE UP YOUR REFUND First, figure out how much of your refund you want to assign toward building credit. It’s OK not to use every last nickel of your tax refund for responsible, un-fun purposes. Financial coach Rick Zwelling of Right Path Financial Coaching in Columbus, Ohio, recommends a little splurge — perhaps a night on the town. “We don’t want to live in permanent austerity,” he says.

Bruce McClary, vice president of public relations and communications at the National Foundation for Credit Counseling, recommends using about two-thirds of a refund for credit building or debt repayment. Split the remaining money between fun and savings. Keep in mind, building savings can protect your credit. McClary points out that many consumers don’t have cash available to cover an unexpected expense of $400. Even a small savings cushion can help handle surprise expenses without running up credit card balances. Keep adding windfalls like tax refunds, raises and bonuses to build enough to cover minimum payments in the event of an emergency like losing your job.

Even a small savings cushion can help handle surprise expenses without running up credit card balances.

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