5 Ways to use your stimulus money or tax refund to fix your credit score (and save $$$!)

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The latest round of stimulus checks just went out the last couple of weeks, so most Americans are looking at a cash infusion to their bank accounts. Additionally, tax time will come and go quickly, with a significant number of tax refunds sent out by the IRS. (In 2020, the average IRS tax refund was $2,741 – not small change!

So, if you’ve received $2,741, $1,400, or any amount recently, what should you do with it?

  1. Buy a new TV?
  2. Go on vacation?
  3. Bet it all on Bitcoin?

Those may be popular options, but they may not be the most prudent financial decisions (especially #3!).

In fact, we propose that you invest some of your new windfall into measures that will boost your credit score.

Why is that the best money move?

Your credit score is more important than ever these days, impacting everything from credit card interest, access to record-low mortgage rates, and taking out car or student loans. But a good credit score goes much deeper for your financial well-being, allowing you to rent an apartment or home, lower your insurance costs (yes, they check your credit!), and even is used by utility and cell phone companies.

In fact, a good credit score can save you money across the board, and studies show makes a big difference in your net worth over time.

So, when that “stimi” check or tax refund comes through this year, please consider investing some of it into bolstering your credit score in these 5 ways:

  1. Pay down your existing debt

Did you know that more than one-third (34%) of tax refund recipients use some of that money to pay down debt? It’s true, as high interest rates on credit cards, auto loans, installment loans, and more can really hurt you financially. And large balances on those credit cards and other revolving/consumer loans are the main culprits. Add up all of those minimum payments and you’ll be shocked how much your cards are draining the bank account!

So, invest some of your tax-time windfall into paying down debt (you don’t necessarily have to pay accounts down to a zero balance, and definitely don’t close out old accounts in good standing). According to FICO, 30% of your credit score is based on credit usage, or how much debt you owe versus the available balance. A great target is to pay your credit card or consumer debt balances below 10% of the available credit if you want to see your score keep rising!


  1. Pay-up any past due accounts!   

Before you even want to start paying down credit card and loan balances, make sure to pay current any accounts that are past due. Whether you missed payments on a credit card, had to skip a car payment when you got laid off from work, or even stopped making mortgage payments as part of a forbearance plan, it’s a great time to get all caught up – and help your credit score.

In fact, paying on-time is the most significant factor in your FICO scoring, and can cause some serious damage to your credit for a long time if you’re not careful. But these are also some unusual times, so there may be a way to clean up your credit after you pay your accounts current again. Contact us for more information and we’d be happy to look at your credit report, together!


  1. Boost your emergency savings 

Did you know that nearly 60% of U.S. adults couldn’t come up with $400 cash today for an emergency bill, repair, or any other calamity? That’s seriously scary, as far too many people live on a nonstop treadmill of paycheck-to-debt every month but have no significant savings.

The problem with that is when the roof leaks, the car breaks down, or there’s a surprise medical problem (which all seem to happen far-too commonly!), you’re left making bad financial choices that put you even further in the hole. Payday loans check cashing services, high-interest credit cards, and other questionable financial alternatives only drive further into a money mess.

So, please take some of your stimulus money or IRS refund and start building up your rainy-day fund. Experts suggest putting aside six months’ worth of bills and obligations, but any savings is good savings in case something goes awry. That may not seem like the most exciting option for your check from Uncle Sam, but 50% of Americans used some of their tax refund for savings in 2019!


  1. Open a secured credit card

If your credit report is a “little light” or you are shy on positive tradelines, opening a secured credit card or even secured debit card may be a useful tool. More people than ever are “credit invisible” these days for a variety of reasons, but a secured card solves that problem by getting them started.

It’s easy – you just put down a $100, $200, or even $500 deposit when you open the account, and then you are free to spend up to that amount on your card without worry. Your credit file will then show a current tradeline with on-time monthly payments, and it’s impossible to be late or miss a payment because you’ve already prepaid!

Additionally, these are similar accounts that will help (and you can find out more here.)

  •  credit cards
  • secured installment loans (self lender)
  • auto loans
  • Rental reporting

If you’ve gone through a bankruptcy, foreclosure, missed other significant payments, or are just starting out so your credit isn’t built up yet, a secured card is a great tool.

Just follow this link to find the best, most trusted secured card for your situation.


  1. Restore your score with Blue Water Credit!

If you’re planning on buying a home soon, applying for an auto or student loan, or even going for your dream job (and your employer checks credit), it may be time for some serious help. Luckily, Blue Water Credit is the nation’s leader in legal and ethical credit score restoration, and we’ve helped countless thousands of consumers boost their scores and get back on track financially.

Blue Water offers complimentary consultations and can review your credit file and situation together, coming up with a strategic plan to get your credit score soaring. If keeping a good credit score can save you money, then contacting Blue Water Credit is the smartest thing you can do today!





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