Credit scores are strong predictor of how Americans will use tax refunds, survey shows

A couple files taxes together and discusses what they will spend their income tax refunds onImage: A couple files taxes together and discusses what they will spend their income tax refunds on

In a Nutshell

Most Americans expecting a tax refund in 2019 plan to put it toward improving their financial situation. But people with higher credit scores are more likely to blow all or most of their refunds next year, while those with lower scores are more likely to put their tax windfall toward paying down debt.
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Add this to the list of things your credit scores may say about you: What you’ll do with your tax refund.

For the second year in a row, Credit Karma Tax® surveyed more than 1,000 U.S. consumers to find out what they plan to do with their tax refunds after filing their 2018 federal income tax returns next year. Most (72%) said they intend to use their refunds to improve their financial situations.

But the financial decisions Americans plan to make vary widely by their credit scores. Notably, people with lower credit scores (300-700) were more than twice as likely as their high-scoring peers (801-850) to say to say they will use their refund to pay down debt. (Learn about our methodology.)

Key findings

 72% of all respondents said they’ll put their 2018 income tax refund toward improving their financial situations.
Of those who plan to use their refund to improve their financial situation, 64% of people with lower credit scores (300-700) say they’ll use it to pay down debt, while 58% of higher scorers (801-850) will bank or invest it.
For those planning to use their 2018 refunds to pay down debt, tackling credit card debt was the No. 1 objective, regardless of credit score.
Of those who plan to spend at least part of their 2018 refund, just 5% of lower credit scorers said they will use all or most of their refunds to splurge on an item or experience. In contrast, twice as many higher scorers (10%) plan to blow all or most of their refunds.

Different financial objectives

While 72% of all respondents said they plan to use their 2018 tax refunds — which they’ll receive in 2019 — toward improving their financial situations, those with lower credit scores had some different objectives than those with higher scores.

What matters to lower scorers

Paying down debt is the top priority for Americans who have goals of improving their financial situations and have scores in the lowest range (300-700). Sixty-four percent said they would put their refunds toward paying down different kinds of debt. Of those:

  • 71% will use it to pay credit card debt
  • 22% will put it toward a vehicle loan
  • 21% will pay medical bills
  • 21% will pay down personal loan debt
  • 14% will put it toward mortgage debt

What matters to higher scorers

By contrast, just 29% of those with higher credit scores (801-850) plan to put their refunds toward debt. Among this group, paying off credit cards was the top priority, just like their lower-scoring counterparts.

But higher scorers with debt were more than twice as likely as lower scorers to earmark their refunds to pay down mortgage debt, traditionally thought of as “good” debt.

Overall, higher scorers were nearly twice as likely as lower scorers to bank or invest their refunds. In fact, 58% of higher scorers said they would save or invest their refunds, making it the top financial-improvement goal for the group.

Splurge or save?

So who is more likely to splurge with their tax refunds — lower scorers or higher scorers?

Neither group seems completely “splurge-proof.” For this past tax year, about 32% of all respondents splurged on travel, clothes, food, electronics, cars and tattoos, among other things with at least some of their 2017 refunds. And about 28% plan to do so again this tax year.

However, more respondents with lower credit scores ended up splurging with their 2017 refunds than did those with higher scores.

Among those who blew at least part of their 2017 refunds, 9% of low scorers used up all or most of their refunds on splurge items, while 28% spent just some of it. Looking at higher scorers, 7% blew all or most of their refund and 19% spent only part of it.

However, according to our survey, lower scorers seem committed to doing better next year with their 2018 refunds.

Of those who plan to splurge with at least some of their 2018 refund, just 5% of lower scorers said they plan to spend all or most of their refunds, and 22% plan to splurge with some fraction of it. Ten percent of higher scorers say they will splurge using all or most of their refunds, while 16% plan to spend just a portion.

Bar chart shows tax refund splurge by credit score band_ 2017 vs. 2018

Source: Credit Karma Tax®

Smart ways to use a refund

Overall, the majority of survey respondents (60%) said they already know how they’ll use their 2018 refunds next year, with most planning to put their money toward achieving specific financial goals such as paying down debt, saving and investing.

While paying down high-interest debt should always be a priority, you can also use your tax refund wisely by:

  • Increasing your retirement savings (if you haven’t contributed the maximum allowable amount to your tax-advantaged retirement accounts)
  • Adding to or creating an emergency fund that can help you cover three to six months of living expenses if you lose your job or get sick and can’t work
  • Saving for a down payment on a home or new vehicle
  • Using the money to make needed home repairs
  • Paying down your student loans
  • Opening a 529 college savings plan for you child.

Finally, while receiving a big refund check may feel good, remember: Your tax refund is money Uncle Sam owes you because you overpaid your taxes throughout the year. It’s like giving the federal government an interest-free loan for 12 months.

Examine your financial situation and consider whether you would like to keep more money in your pocket and working for you throughout the year. If so, check out the IRS Withholding Calculator to adjust the amount of tax you have withheld from your paycheck. Adjusting your withholding amount can help you fine-tune your refund next year.


On behalf of Credit Karma, Qualtrics conducted an online survey in September 2018 of more than 1,000 Americans 18 or older to find out what they did with their 2017 tax refunds and what they plan to do with their 2018 tax refunds. All percentages in this article are rounded to the nearest whole percent.

About the author: Evelyn Pimplaskar is Credit Karma’s tax editor. With nearly 30 years of experience in media, marketing, public relations and journalism, Evelyn’s written about nearly everything – from newspaper accounts of salacious … Read more.