How Your Tax Refund Could Improve Your Credit Score

Getting a tax refund is always helpful. However, how should the tax refund be used? It can be very tempting to use the refund for your own expenses. Do you know that you can use the tax refund to improve your credit score? Let’s learn how. 

How to Increase your Credit Score with a Tax Refund?

You can improve your credit score by using your tax refund in the following ways –

1. Use it as a security deposit for your secured credit card – A secured credit card needs a security deposit as collateral. A secured credit card can improve your credit score as they are less risky for the lender. You can use the tax refund to get a secured credit card. When you make purchases using a secured credit card and repay your dues on time, it will help in improving your credit score.
2. Pay for your expenses in cash – A low credit utilization ratio can help in improving your credit score. You can pay for some of your expenses in cash, thereby reducing your credit card usage. By doing that, your credit utilization will be maintained at an optional 30%. This will help in improving your credit score.
3. Settle the late payments with the tax refund – Late payments on your bills can negatively affect your credit score. It is a wise idea to use the tax refund money to pay off your outstanding bills. Credit card issuers do not generally report late payments to the credit card bureaus for 30 days. You can use the tax refund to your advantage by paying the outstanding bills within the 30-day period.
4. Prepare for emergencies with the tax refund – Using the tax refund, you can create an emergency fund to help you in times of need. It can be used to cover unexpected expenses, cash scarcity, etc. You can use the emergency fund and avoid spending on your credit card. This helps in maintaining a low credit utilization ratio and hence a better credit score. 
5. Invest it further – If you do not have any outstanding debt to pay or settle, you can use the tax refund to build your investment portfolio. Having a solid financial back-up can help build your credit score too.
6. Make home improvements – If you own a home, consider using your refund to make necessary repairs or improvements. This can increase the value of your property and make it more comfortable to live in.
7. Treat yourself – While it’s important to be responsible with your money, it’s also okay to splurge a little bit. Use a portion of your refund to treat yourself to something you’ve been wanting or to take a well-deserved vacation.

How To Claim Income Tax Refund in India?

If you are eligible for an income tax refund in India, you can claim it by following these steps

1. File your income tax return– The first step to claiming a refund is to file your income tax return. Make sure you file your return within the due date specified by the Income Tax Department.

2. Check your tax liability – After filing your return, check your tax liability for the year. This can be done by logging in to your account on the Income Tax Department’s e-filing portal.

3. Request for refund – If your tax liability is less than the tax deducted at source (TDS) or advance tax paid by you, you can request for a refund by filling out and submitting the applicable form on the Income Tax Department’s e-filing portal.

4. Verify your return – Once you have requested for a refund, verify your return using either your Aadhaar number, digital signature certificate, or by generating an electronic verification code.

5. Wait for processing – After you have verified your return, wait for the Income Tax Department to process your refund request. You can check the status of your refund using the steps mentioned in the previous answer.

6. Receive your refund – If your refund is approved, the Income Tax Department will credit the amount directly to your bank account. You will also receive an intimation from the department indicating the amount and mode of payment.

It’s important to note that the process for claiming a refund may vary depending on your individual circumstances. For more information and guidance, you can consult a tax professional or refer to the Income Tax Department’s website.

How to Check the Status of a Tax refund?

To check the status of your income tax refund in India, you can follow these steps –

1. Visit the Income Tax Department website – Go to the Income Tax Department website at www.incometaxindia.gov.in and click on the “Refund/Demand Status” link under the “Services” tab.
2. Enter your details – On the next page, enter your PAN (Permanent Account Number) and select the relevant assessment year for which you’re expecting a refund.
3. Submit and view status – Click on the “Submit” button to view the status of your refund. You’ll be able to see whether your refund has been processed and the expected date of credit, if applicable.

Alternatively, you can also check the status of your refund by calling the Income Tax Department’s toll-free number at 1800 4250 0025 or sending an email to [email protected]. Be sure to have your PAN and assessment year handy when you call or email.

It’s important to note that the refund status may take some time to update, so if you’ve recently filed your tax return, it may take a few weeks before you can check the status of your refund.

Conclusion

Using your tax refund wisely can help build your credit score. Consider paying off old debts, consolidating debt accounts, preparing for emergencies, investing the amount, pay for your expenses in cash thereby reducing the credit utilization ratio, etc. By following a little discipline, you can increase the credit score.