How Do You Build Credit with a Tax Refund?

Tax season is here, which means millions of Americans will receive tax refunds soon. In 2024, taxpayers who filed for the 2023 tax year received an average refund was $3,138. That kind of refund is a great opportunity for anyone! So, whether you receive a few hundred dollars or a few thousand dollars, putting it to good use can make a real difference. One smart option is to build or rebuild your credit, and this article will show you how. Keep reading. Here are five easy ways to make the most of your tax refund and strengthen your financial standing.

1. Open a Secured Credit Card with Refund

Did you know that using a secured credit card is one of the best ways to build credit? It’s true, especially if you are starting from scratch or needing to repair a low credit score.

Secured credit cards require an upfront cash deposit, which sets your credit limit. If you need extra funds for the deposit, you tax refund is a great way to get started. From there, use your card wisely by keeping your spending low and paying off the balance on time every month. With consistent use, you will improve your credit score—and one day, you might even qualify for an unsecured card.

2. Pay Credit Card Bill

Payment history accounts for 35% of your credit score, making it the biggest scoring factor. Paying on time is very important because it shows lenders you can handle debt responsibly. To stay on top of your finances, set aside a portion of your tax refund to cover your credit card payments, ensuring you can pay on time for the next several months.

Pro Tip: Set up automatic payments so you never miss a due date! Many credit cards let you choose your preferred payment dates. This means you can sync your payment dates with your paychecks.

3. Reduce Credit Utilization Ratio with Your Tax Refund

Your credit utilization ratio (also known as the debt-to-credit ratio) is the percentage of your credit limit that you are currently using, and it also has a major impact on your credit score. A lower utilization ratio (below 30%) shows lenders that you can manage your monthly spending without maxing out your credit card.

For example, let’s say your current credit limit is $1,000 and your balance sits at $600. Then your utilization ratio is 60%—not ideal. You can use your refund to pay off part of that balance and lower your ratio. Or better yet, you can add more money to your deposit on a secured card, which raises your credit limit while also improving your utilization ratio.

4. Pay Your Existing Debts

If you are carrying credit card balances or loan debt, consider using your tax refund to chip away at what you owe. As mentioned, reducing your debt improves your credit utilization ratio, which greatly impacts your credit score.

If you aren’t sure where to start, try the avalanche method, where you prioritize high-interest debts first. For example, if you owe $1,500 on a credit card with a 25% interest rate, use $1,000 from your refund to pay towards your balance. This not only improves your credit utilization but also saves you money on interest.

Pro Tip: Always check your credit report to ensure your payments are being accurately recorded.

5. Plan Ahead for Next Tax Season

You will receive more tax refunds in the future, so it’s worth planning ahead to make the most of them. Consider adjusting your withholdings to align with your financial goals. A higher paycheck throughout the year can help you save gradually, while a larger refund provides a lump sum for bigger financial moves.

Think about how you plan to use future refunds—whether to pay off debt, build your savings, or take advantage of opportunities like premium credit cards and mortgage loans.

Building Credit at Academy Bank

Your tax refund isn’t just extra cash—it’s a chance to build or rebuild your credit. By opening a secured credit card, paying down debt, or using your refund as a payment safety net, you can unlock better financial opportunities.

Wondering where to get a secured credit card? Take the next step with Academy Bank’s Credit Builder Secured Visa® Credit Card. It’s designed to help you build or repair credit while offering the flexibility you need. Here are some notable features of our credit builder card:

• No Application Fees, Annual Fees, or Over-Limit Fees.
• Automatic Reporting to Major Credit Bureaus to help build your credit history.
• Adjustable Credit Limits based on your deposit (ranging from $300 to $3,000).
• Opportunity to Upgrade to an Unsecured Card with your strong payment history.

Today’s the day! Get started with the best credit card for building credit!

Apply for Credit Card 

Looking for more tools? Our Credit Card Payoff Calculator can help you create a plan to repay your card and improve your credit score.