Credit Score Articles

Tax Return Can Help Rebuild Financial Footing

Many Americans may be encouraged by government figures showing that the size of the average tax return has grown in 2010, largely due to provisions in last year's federal stimulus bill.

For people who have been trying to get ahead on debt management goals or to simply stay ahead of creditors and maintain a high credit score, the money that comes from a state or federal tax return can be an invaluable opportunity to make some headway on a wide variety of financial needs.

By putting some money aside or paying down personal debt, people can also build up their credit score, giving themselves a better chance down the road of saving even more money in the form of lower interest rates for homes, autos and other needs. In some cases, a high credit score can make a difference between getting hired for a specific job or paying less for auto insurance.

"The average tax refund has reached $3,036 this year, a $266 increase from a year ago. The Recovery Act is a major factor behind these larger, record refunds. About half of all Americans haven't filed their taxes yet, so we urge them to look carefully at these Recovery provisions," said Internal Revenue Service Commissioner Doug Shulman.

In its own effort to encourage savings, the IRS gives people the opportunity to invest all or some of their tax return in government savings bonds. The bonds are a good option for those looking for a stable long-term investment and who may be less inclined toward the stock market.

Other personal finance experts advise people to use their tax return to either start a savings account or to pay down one's highest-interest debt. Having an emergency savings fund is a good way to protect one's credit score because it can be used to pay for car repairs and other one-time expenses that could have otherwise ended up being paid for with a high-interest credit card.

Consumers should generally try to build up an emergency fund sufficient to cover their monthly expenses, particularly their mortgage, for at least several months.

For those who can use their tax return to pay down debt and otherwise get back on their feet financially, a better credit score is just one of the benefits. This is why it makes sense to research the federal stimulus bill to be aware of all tax benefits that could result in a larger return.