Americans love to spend their tax refund on new cars or dream vacations. If your credit is in trouble, then this year you should consider using that tax refund to get your credit back in shape.
Improving your credit score will help you get a lower interest rate on that car loan, and it can also help you get the credit you need for your dream vacation. A repaired credit score will pay for itself several times over, and all you need to do is make the right investments with your tax refund.
If you are planning any large purchases, (mortgage, car loan, home renovation loan, etc.), then it is important to repair your credit and achieve the highest credit score possible. Lenders like to see responsible borrowers who have taken the time to repair their credit and then have maintained that good credit for months or years. The sooner you get started repairing your credit, the sooner you can start reaping the rewards with lower interest rates that could save you thousands more in the long run.
Paying Down Your Account Balances
One of the biggest myths about managing credit cards is that you have to pay your balances off every month to keep a great credit score. For people new to managing credit, this idea may sound like it would cause stress and anxiety, but this is not true.
You can apply your tax refund to paying off portions of all your balances, and you will still help improve your credit score. It’s always helpful to leave a small unpaid balance on your credit cards each month to show the credit companies that you are committed to using your credit in a responsible way.
When your credit score is calculated, one of the major considerations credit reporting agencies make is how you manage your credit. The idea of maintaining a balance on your credit cards as opposed to always paying them off helps show your ability to manage your finances and regulate your spending.
Paying Off Old Accounts
While it is a good idea to leave a small balance on your active credit accounts to boost your credit score, that changes when discussing old accounts. If you have old credit accounts that have been closed but still have a balance, then you should use your tax refund to pay those balances off and get those accounts off your credit report.
The first place to start would be to contact the customer service department of the company that issued the old account. If the account is several years old, then it may have been sold to a collection agency. You can ask the account issuer if they can give you the information to contact the collection agency, or ask the issuer if they would negotiate a settlement to get the account off your credit report.
Paying off very old accounts can be tricky. The account issuer may negotiate a payoff balance with you, but they might forget to report the account as paid to the credit agencies. You should monitor your credit report every 30 days and make sure the paid off account has been removed. If it has not been removed after 30 days, then contact the issuer to get the account removed. Be sure to ask for everything in writing, and make notes of the calls you make to the issuer.
Buying a Car
Your bad credit is hurting you in many ways, especially when it comes to trying to buy a car. When you get your tax refund, you can use that extra money to get a better deal on a car, even with your bad credit.
With bad credit, you will have to pay a higher interest rate and possibly some extra fees to get a car loan. When you offer a larger down payment, you can get a better interest rate and offset many of those extra fees the finance companies will want to add.
Starting a Savings Account
A savings account, in and of itself, is not going to have a significant effect on repairing your credit. However, maintaining your credit account balances is critically important when you are trying to improve your overall credit score. Instead of spending that tax refund this year, it would be better to put it into an interest-bearing savings account and use it to help pay down your balances each month.
Credit card companies like consistency when it comes to paying your monthly bills. This means you need to pay your bills on time each month, and you need to make no less than the minimum payments. When you have a tax refund growing in an interest-bearing savings account, you have the financial reserves you need to make your payments. Over time, this will significantly improve your credit score and repair your credit profile.
You work hard all year and you look forward to enjoying your tax refund each year, which is a perfectly normal expectation. But if your credit profile needs repair, then you should consider investing this year’s tax refund into improving your credit. There are simple steps you can take yourself that will help get your credit back on track and raise your score.
Another investment you can make with your tax refund is to utilize the professional credit repair services of an organization such as Ovation Credit Services. With these kinds of services, you have access to the comprehensive and personalized advice you need to get your credit back on track.