You’re sitting around waiting for your tax refund, no doubt wondering what you plan to spend it on. But what if we told you that you could buy yourself a better credit score with your tax refund? It’s true. So while you might want to treat yourself to something small, blowing your entire tax refund on a belated Christmas gift for yourself isn’t the best use of that “found” money. Here’s how you can use your tax refund to help improve your credit score quickly.

Paying Down Debt

Greg Lull, Head of Consumer Insights with Credit Karma, suggests that consumers pay down some or all of their debt with their tax refund. “One of the most immediate things you can do is pay down credit card debt,” he said. This is because credit utilization — the percent of your available credit you’re actually using — is reported almost instantly. Your overall utilization as well as your utilization on each card should be below 30%. So pay down any card that’s over 30% until it’s under, and you’re going to see an improvement in your credit score the very next time your credit card reports to the agencies. Anecdotally, Lull saw a 50-point increase by making one big lump sum payment. That’s quite the investment in yourself.

Pay Off Debt From Least Amount to Highest

Ellie Kay, a family finance expert, notes that unless your debt is very low, you’re not going to be able to pay all of your debt off. Paying each card down to under 30% owed will help you out. Once you’ve done that, she suggests that you pay off the card with the least amount of money on it. “If you have a card with a low balance, just clear it out and pay off the balance,” she said. Now you can take all of the money you were putting toward paying it down and pay it forward to the next biggest card. This is known as the snowball method and your tax refund can start the snowball into motion.

An Emergency Fund

What if your debt utilization is already low and you have manageable amounts of credit card debt? Both Lull and Kay suggest that you then put the money into an emergency fund. Lull notes that emergency funds can help people from having to make a bad decision that will negatively impact their credit. For example, if you’re in need of car repairs, you won’t have to charge up your credit card (or worse, take out a payday loan) and end up paying it off over years. “You just go to your bank and get cash,” Kay said. “It sounds boring, but people need to hear it.”

Check Your Credit Report and Get Targeted

Kay notes that checking out your credit report can help you to take a more tailored approach to improving your credit. “When you get your credit report, it will tell you specifically what’s hurting your credit score,” she said. “Then you can use the money to improve those areas.” For example, if you have a delinquent account less than two years old, paying that off can improve your credit score. Or maybe the average age of your credit accounts is what’s hurting you. Paying off, then closing accounts that are less than a year old can improve your credit history, giving you a little bump there.

So treat yourself, but don’t cheat yourself. Earmark the lion’s share of your tax refund for improving your financial situation by boosting your credit score. It’s one of the best things you can buy yourself this spring.

–information taken from www.thestreet.com/