Huffington Post: 5 Ways to Use Your Tax Refund to Build Your Credit Score

Tax time is here and the refunds are coming! Most people get their refund and spend it on a something they may really want or feel that they need. Five Ways to Use Your Tax Refund to Build Your Credit Score by Charlie Scanlon is a great piece urging you to instead invest in your credit, invest in your future.

Due to the high cost of living, unforseen expenses and life in general, many people get themselves into credit card debt. Sometimes those cards are so high that you can't seem to pay them down, or they go into collections. Either way, your credit score is taking a hit, and a really big one.

You know that your credit history affects your ability to make major life purchases from cars to homes. Do you know it also affects your everyday life, as your interest rates may be so high, that your high payments are keeping you from making other purchases.

In today's blog we review the 5 points outlined in the Huffington Post article.

1. Get a Copy of Your Credit Report
2. Pay Down Your Credit Card Balances
3. Get and Fund a Secured Credit Card
4. Pay Off Collection Accounts
5. Hire a Qualified Professional Credit Restoration Company

Get a Copy of Your Credit Report. There are several websites out there that advertise your free annual credit report like "free credit reports" or "credit karma." The article suggest using AnnualCreditReport.com.

We suggest using one of the major companies like CreditCheckTotal.com or PrivacyGuard.com. If you are going to go into credit repair, a provider will ask for an account with one of these companies. It is worth the investment to do it right the first time.

Pay Down Your Credit Card Balances. This is the first option everyone thinks about. I need to pay down the credit cards. Sometimes it is easier said than done. Especially if you have several cards out.

The strategy is to keep your credit cards below 45% use, and 30% use is what you really want. So if you have three credit cards, you will want to spread that tax return around and make the most use of it. If you only have enough to pay one off, consider lowering two cards to around 30% use. The next step is to wait a month for those cards to post to your credit report. You now have a much lower percentage of credit use. With this at your disposal, call the third card and request that they raise your credit limit. Do the math, you want to get that card to be at about 30% use as well. Note: it is extremely important that you request they do a Soft credit pull so that it does not go into your credit report as a hard inquiry, which will take off points.

Remember, raising limits is just as effective in lowering your credit use percentage, just make sure you do not start using it again.

Get and Fund a Secured Credit Card. The article is right, many people do not even show up the credit radar, so when they try to buy a car, they are rejected for a lack of history. Without credit, you don't exist to car dealers and mortgage companies.

It is important to start building credit. Getting secure credit cards may sound a bit complicated and sometimes the interest on those is fairly high. We suggest you simply go to your local Target, Walmart or gas station like Shell. The barrier to getting credit with these companies is usually smaller. You may only get $100 credit limit, but it is a start.

Use your new card and make payments for six months and you can request an increase in the limit. Remember to ask for a soft credit pull.

Pay Off Collection Accounts. Do NOT make partial payments. The Huffington Post articles makes a great point about restarting the statute of limitations on the debt, which means it is a fresh debt once again.

If you are already in collections, call the creditor and make an agreement to settle, but make sure it is marked as paid in full. You will want to get a letter from your collection company stating that they release the debt as paid in full. You can then use this letter to get the collection cleared from your history. You will want to work with a credit repair specialist to get this done - a worthwhile investment.

Hire a Qualified Professional Credit Restoration Company. Leading in from our last point, fixing your bad credit history takes time and diligence. That is why it is a good idea to hire a specialist, who does this all day and will be there for you.

One important distinction on credit repair companies is that you usually don't want to hire companies that charge a monthly fee, as they have no motivation to completely fix your credit. A client will a clean history is not going to pay the monthly fee.

Charlie Scanlon makes a great point at the end of the article:
"You may want to consider spending your tax refund on a professional, reputable credit restoration company to help you along the path to better credit. A well-qualified credit restoration company will provide you with important guidance as to how to address negative items that appear on your credit report, help you to maximize your credit utilization, teach you how to acquire and properly utilize a secured credit card, and help you with negotiating collection accounts."

Thanks for reading and this year invest in your future! Good luck

The original article can be found at:
http://www.huffingtonpost.com/charlie-scanlon/five-ways-to-use-your-tax_b_9682240.html