Cash News
The 2025 tax season is officially underway. If you’re like many Americans, you may be expecting a refund when you file by the April 15 deadline.
In 2024, the average tax refund was $3,138 — based on 104 million total refunds issued by the IRS. A windfall that large can go a long way toward jumpstarting your financial goals, including building a good credit score.
Here’s how you can best take advantage of your tax refund to build credit in 2025.
Whether you’re starting from no credit at all or you have a poor credit score, you can use your tax refund to make moves toward building long-lasting good credit.
A secured credit card can be a useful tool if you don’t otherwise have the credit for a traditional card. Secured cards require you to submit a security deposit when you open your account. Because this deposit lessens the potential risk for card issuers, these cards are often easier to get approved for, even with a poor credit rating or no credit history.
Your security deposit will typically act as your secured card’s credit limit. That’s where your tax refund can help. Putting a portion (or all) of your refund toward your security deposit can help you obtain a secured card and begin building credit.
Once you’re approved and begin using your new card, your payment history gets reported to the credit bureaus (Equifax, Experian, and TransUnion) like any other credit card. As long as you make sure to pay on time each month and keep your credit utilization low, you can use the secured card to improve your credit score over time.
Read more: Best secured credit cards
Missing a credit card payment can be costly for both your wallet and credit score.
Late payments often carry added fees and penalty APRs that can quickly drive up the cost of your debt. Depending on how long you leave the balance unpaid, your issuer may also report the missed payment to credit bureaus. Not only can that hurt your credit score now, but the information remains on your credit report for years into the future.
If you have any past due payments when you receive your tax refund, paying them off can be one of the best ways to protect your credit score.
Read more: What happens if you miss a credit card payment?
Another way to use your tax refund to build your credit is to put that extra money toward your existing debt.
Carrying a credit card balance itself doesn’t necessarily hurt your score. But if you have a high balance that’s keeping your credit utilization rate close to your cards’ limits, it may keep your credit score down.
Paying off debt is a smart option, even if the refund doesn’t cover your full balance. Not only can you potentially boost your score by using your refund to reduce your credit card debt, but you’ll also move closer to paying down the debt in full and reduce interest costs with a smaller balance.
If the score you have today is high enough to qualify, you might also want to consider a balance transfer credit card. When you transfer an existing card balance to one with 0% APR on balance transfers, you’ll have several months to pay off the debt without adding any more interest charges. Balance transfer cards may have intro periods of up to 21 months and charge balance transfer fees around 3% to 5% of the transferred amount.
Read more: Best balance transfer credit cards
In general, the process of filing your annual taxes doesn’t have any effect on your credit score. But you could see an impact on your credit score if you choose to pay your taxes with a credit card.
This isn’t the most cost-effective way to pay, since you’ll usually be charged a fee to pay with a card. However, it could be worth it if you can earn more in rewards than the cost or you have a 0% APR offer.
Read more: Can you pay taxes with a credit card, and how much will it cost?
However, charging a potentially large tax payment to your credit card can impact your credit utilization ratio (the amount of credit you’re using compared to your available credit) — a major factor in your credit score. If you can’t pay the tax balance in full, you could also accrue high-interest credit card debt.
Like paying your taxes with a credit card, using a personal loan to pay your tax bill could also have an impact on your credit score. For example, opening a new account can lead to a temporary hit to your credit, though it’s usually minor.
Before you pay your taxes, consider all the potential ways to manage your bill this year.
Beyond building credit, there are plenty of smart ways to use your tax refund to get ahead of your financial goals. Here are a few to consider this year.
It’s never a bad time to jumpstart your savings — especially when you can earn upwards of 4% on the amount you put into a high-yield savings account.
If you don’t already have emergency savings to protect you against surprise expenses or periods of financial hardship, your tax refund is a great way to start. It’s generally best practice to keep at least three to six months’ worth of expenses in your emergency fund.
With your tax refund as a baseline, you can build your savings over time by making regular contributions in whatever amounts fit your budget.
Read more about today’s top high-yield savings accounts.
A tax refund windfall can also help with your annual retirement savings. If you put it in a Roth IRA, for example, you’ll grow that already-taxed money over time until you can withdraw your contributions and earnings tax-free at retirement age.
Roth IRAs have income limits, so it’s important to make sure you qualify. There’s also a limit to how much you can contribute annually. In 2025, the contribution limit is $7,000, with an additional $1,000 catch-up contribution for investors over age 50.
Read more: Traditional and Roth IRA contribution limits 2025
If you receive last year’s average refund amount of $3,138, you’d only need to contribute an additional $3,862 over the rest of the year ($4,862 with the catch-up) to max out your account in 2025. That’s about $483 a month for the eight months following Tax Day in April.
Find out more about retirement planning with our step-by-step guide.
This article was edited by Alicia Hahn
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.