How to build credit with your tax refund

The 2026 tax season is officially underway, and if you’re like many Americans, you may be expecting a refund when you file by the April 15 deadline.

The average tax refund in 2025 was $3,167, based on more than 10 million total refunds issued by the IRS. This year, some filers may get even bigger tax refunds, thanks to recent tax law changes.

A large windfall can go a long way toward jump-starting 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 2026.

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 have the credit to qualify for most credit cards. Secured cards require you to submit a security deposit when you open your account, which can reduce the potential risk for your credit card issuer. As a result, secured cards are often easier to get approved for, even with a poor credit score or no credit history.

Security deposits vary, but many secured cards require at least a $200 deposit (which will act as your credit limit). That’s where your tax refund can help. You can use a portion of your refund toward your security deposit and begin building credit with a secured credit card.

Once you’re approved and start 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: Secured vs. unsecured credit cards — what’s the difference?

Missing a credit card payment can have consequences for both your wallet and credit score.

Late payments often result in 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 missed payments 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, use it to pay down what you can. That’s one of the best ways to preserve your credit score and avoid additional fees.

Your credit score may also benefit when you use your tax refund to pay down existing debt.

Carrying a credit card balance itself doesn’t necessarily hurt your score as long as you’re paying at least the minimum on time. But if you have a high balance that’s keeping your credit utilization rate close to your credit limit, it could negatively affect your score. Reducing that credit utilization by paying down the balance, in turn, can boost your credit score.

Paying off debt is a smart option, even if your tax refund doesn’t cover the full balance. Any additional payment toward your balance can reduce your overall interest charges and help you get closer to paying down the debt in full.

If the credit 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 today can have intro periods lasting up to 21 months and charge balance transfer fees of 3% to 5% of the transferred amount.

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. Plus, charging a large tax payment to your credit card can impact your credit utilization rate, and if you can’t pay the tax bill in full, you could also accrue high-interest credit card debt on the charge.

However, it could be worth it if you can earn more in rewards than the cost, or you have a 0% APR offer and want more time to pay your bill.

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.

Learn more: Consider all the potential ways to manage your tax 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 jump-start 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.

A tax refund windfall can also help with your annual retirement savings. For example, you can contribute your refund to a Roth IRA and grow that already-taxed money over time until you 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.

If you receive last year’s average refund amount of $3,167, you’d only need to contribute an additional $4,333 over the rest of the year to max out your account in 2026 ($5,433 with the catch-up contribution for those 50 and up). That’s about $542 per month for the eight months following Tax Day in April.

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.