How Credit Sesame Helps You Decide Where to Spend Your Tax Refund

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Doing your taxes is probably not your favorite thing to think about, but everyone loves a refund. In fact, nearly eight in 10 U.S. taxpayers get one. The average refund is $3,120, but whether you get more or less than the average, it’s smart to have a plan for spending it. The sooner you file, the sooner you can get your refund if you are eligible for one. (Keep in mind this year’s tax deadline falls on Tues., April 18, instead of the usual April 15 deadline.)

If you haven’t filed your tax return yet, don’t panic. Credit Sesame recently teamed up with H&R Block to help get your taxes done quickly and accurately. Sign up with H&R Block through Credit Sesame and receive a discount of up to 35 percent.

With H&R Block,, you can easily choose to file with the help of a tax pro at one of H&R Block’s 10,000 store locations or do it yourself through H&R Block’s easy-to-use tax software.

Don’t forget to log in to Credit Sesame to get a complete picture of your credit and debt, so you can see exactly where you should spend your tax refund if you’re receiving one this tax season. Here’s how.

If your payment history grade is less than an ‘A’…

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Your payment history accounts for 35 percent of your credit score. If your credit report shows any missed payments, you can use your tax refund to get your payment history in the black again.

You can use your tax refund to bring your late account(s) current.

If you are more than 180 days late paying a bill, contact the creditor first to find out how to get your account in good standing again. Remember, some creditors will accept less to than the full payment. It never hurts to ask!

For accounts that were paid late and now show up on your credit report, you may have more leeway to seek a fair solution. For example, if you only have one delinquent payment under 30 days late, contact the creditor and explain the one-time mistake. Then ask if you can send a goodwill letter to request a mark removal from your credit.

A goodwill letter should say that you take responsibility for the missed payment, explain the circumstances leading to the missed payment, and a promise to continue making on-time payments moving forward. It doesn’t always result in removal of the late payment from your credit report, but it is worth a try. 

Last year, when my husband and I were shopping for new mortgages, we discovered a very late payment to a department store reported on his report. It was a simple mistake that happened in the midst of having a new baby and dealing with the death of a grandparent. Even though the dollar amount was small, the negative mark hurt his credit score.

My husband called the creditor and they gave him an address to send the goodwill letter to. The letter was easy to write, especially with online templates that are available online. It took longer than we expected to see results. At first, they just refunded our late fee. However, after a phone follow-up, they agreed to remove it from my husband’s report. His score subsequently rose several points.

If your credit usage grade is less than an ‘A’…

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Your credit usage grade is based on your credit utilization rate. That is the amount of revolving debt you carry (your balances) compared to the total amount of credit that is available to you (your credit limits). Utilization accounts for 30 percent of your credit score.

You can use your tax refund to pay down debt.

Due to a costly move that included purchasing new appliances, my credit utilization rate was at 45 percent in January, and my Credit Sesame credit report card showed a “C” for credit usage. Financial experts recommend a utilization rate below 30percent; lower is even better.

[Use H&R Block for your taxes and receive a code for a special discount of up to 35 percent for signing up through Credit Sesame.]

I wanted to improve my credit score this year and I know lowering my credit utilization rate is one of the most effective ways to do that. To improve your credit utilization ratio, you need to do one or both of the following:

  • Decrease credit card debt
  • Increase your credit line
  • A mixture of both

Between Jan. and Feb., I paid $3,500 towards my credit card debt. This dropped my utilization rate to 39 percent and raised my credit score from 696 to 703.

With a better credit score, I applied for a new line of credit with a 0 percent APR for 14 months, which increased my credit limit by $11,500 and dropped my utilization rate to 29 percent. The new card also pushed my grad from “C” to a “B” and raised my credit score to 709.

It can be hard to hand your tax refund over to a creditor, especially when your return feels like a bonus. Consider the long-term rewards: having better credit and financial health. Your tax refund isn’t free money – it’s money you overpaid to the government.

The $3,500 payment didn’t drop my credit utilization score below the recommended 30 percent level, but it did boost my score six points and take my credit rating from “Fair” to “Good”. My goal of getting out of credit card debt in 2017 made it easier to part with the $3,500.

[Use H&R Block for your taxes and receive a code for a special discount of up to 35 percent for signing up through Credit Sesame.]

If your account mix grade is less than an ‘A’…

Credit mix is the variety of credit products that appear on your credit report. A healthy credit report shows that you can handle different types of accounts, like a credit card, a car loan, a mortgage and a student loan. Credit mix accounts for 10 percent of your credit score.

Take out a personal loan to consolidate high-interest credit card debt.

If you have credit card debt and your account mix grade is less than an A, then consider applying for a loan with a lower APR and transferring your credit card debt to the loan. This can help you lower your monthly payments and save on interest. The installment loan also adds to a healthy credit mix.

Don’t lock yourself into a loan if you don’t need it. A healthy credit mix will come in time, as different types of credit products naturally become appropriate.

How Personal Finance Experts Recommend Spending Your Tax Refund

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Still not sure how you want to spend your tax refund? Take a clue from these seven personal finance experts:

1. “I would chunk it up. Depending on the size, a portion would go into savings or into a new investment. I would re-invest some into my business, and I would go do something nice for myself and my family. It’s so important to give a little to yourself FIRST, and then make some responsible decisions about how it can best return its ROI.” Lisa Chastain, Money Coach

2. “I would spend my tax refund in one of three ways.  I would tackle debt if I had any using the debt snowball method of smallest balance to largest.  If I didn’t have debt, I would look to max out my retirement through funding my IRA.  Finally, if I was fully funded in retirement I would invest the money in a low cost passive index fund through Vanguard.” Rob Andersen, Founder of MustardSeedMoney.com

[Use H&R Block for your taxes and receive a code for a special discount of up to 35 percent for signing up through Credit Sesame.]

3. “My refund will be split between my Capital One 360 Savings account and my IRA. I try to max out my IRA ($5,500) every year. I won’t spend a dime of my refund.” Jared Franklin, a product manager at Blispay

4. “I would look for holes in my financial plan to decide where the money would do the most good: pay off a debt, shore up my emergency fund, make my Roth IRA contribution, add funds to my Health Savings Account. If all were in good shape already, I’d go on a cruise. If the refund was really big (over $1,000) and not due to unusual circumstances the previous tax year, I would adjust my withholding or estimated tax payments to keep from giving the government such a large interest-free loan next year.” Sharon Marchisello, author of Live Cheaply, Be Happy, Grow Wealthy

5. “Each year when I get a refund I first pay off any existing high-interest debt (if any) and then invest the rest in a diversified portfolio of blue-chip dividend paying stocks. The only thing better than a tax-refund is a tax-refund that grows over time.” Mike Scanlin, CEO of Born to Sell

6. “About two-thirds of my refund was invested back into my business, in hopes of helping to increase my income for this year. Most of that went towards new marketing initiatives, and the rest towards software that will help my business run more efficiently. For those who aren’t self-employed, ways to reinvest in themselves could mean pursuing additional education or professional certifications that help with their career progression.” Steven Fox, Founder of Next Gen Financial Planning

7. “Getting a tax refund is like a surprise payday that you didn’t expect.  Instead of going on another vacation or buying an expensive present for yourself focus on paying down high interest debt and building emergency savings.  If you’ve got those bases covered, put that refund to work in an IRA to make sure you have a leg up on retirement savings!” Peter Kuck, Founder of Thrift Gurus

You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved.
Published March 30, 2017 Updated: April 11, 2017
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