How To Use Stimulus Checks To Improve Your Credit

A photo of the economic stimulus check that was sent to US citizens during the covid-19/coronavirus quarantine.
LPETTET / Getty Images/iStockphoto

At least 18 states have delivered stimulus checks to qualifying residents or plan to through the remainder of the year to offset the impact of rising costs.

Find Out: Stimulus Payments Are Coming to These States in October
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“These inflation-relief payments aim to lessen the financial strain on America’s lower- and middle-class people,” said Levon Galstyan, a consumer finance expert and CPA with Oak View Law Group

The payments range from less than $100 to more than $1,000.

“Among other everyday necessities, some people may spend it on their rent, bills or groceries,” Galstyan said. “Others might invest it in a high-yield emergency fund or use it to purchase a new home or vehicle.”

In most states, income thresholds determine who qualifies — your credit score does not impact your eligibility status or the amount you’ll receive in any state stimulus program. Although your credit plays no role in whether or not you’ll get a check, you can use that check to whip your credit into shape

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“If people are interested in using inflation relief payments to improve their credit, there are several ways to do so,” Galstyan said.

Here are a few of the best strategies. 

You Have Only One Shot — Aim It at Your Highest-Interest Debt

Most states are issuing fairly modest checks that you won’t be able to stretch too thin. Unlike the big federal pandemic stimulus payments that you could spread out, you’ll have to concentrate your state check on one target area to have any real impact on your credit. 

In most cases, that means paying down debt.

“Inflation-relief payments in many states will involve receiving a one-off direct deposit into their account if they earn below a threshold set by a state,” said Damian Serwin, investment banking analyst and co-founder of Why Budgeting. “To improve their credit, people might look to use this one-off and unexpected money to pay off some of their debt. The best way would be to target the highest interest rate credit that [has little or no] payment penalty. This would make sure the maximum benefit for the prepayment is made with the least amount paid into penalties.”

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Not only does paying down debt reduce the amount you owe, but it spruces up your credit report. 

“One major factor in someone’s credit score is their credit utilization,” said Ashley Morgan, a debt and bankruptcy attorney in Northern Virginia. “Ideally, you want your utilization to be under 30%, so paying down debt can help.” 

Looking To Build Credit? Open a Secured Card

For most people, high-interest debt should be the first and last stop for their stimulus checks — but debt isn’t the source of all credit trouble.

“What should be done really depends on the reason their credit needs improvement,” Morgan said. “If your credit is just poor because of no good accounts or no recent positive activity, the best bet with those funds can be opening a secured credit card.” 

A secured card requires a cash collateral deposit that you spend as you charge and then refill when you run low. For people with no or very little credit history, secured cards can be excellent ways to build credit. 

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“The deposits are commonly between $250 and $1,000,” Morgan said. “A common example is that if you provide a $500 deposit to a bank or credit union, the lender will give you a credit card with a limit of $500. This allows you to get a credit card with little risk to the bank. If you miss a payment on the secured credit card, the lender will take the deposit and close your account.” 

Use Your Stimulus Check To Erase a Blemish

If you have a judgment on your record, a delinquent account that your lender charged off or some other derogatory mark on your credit report, that could be the best leak to plug with your inflation-relief payment.  

“If you have an account on your credit report that is in collections, you likely should use those funds to pay off or settle the collection account so it is no longer in a negative status,” Morgan said.

Removing that blemish could give your score a fast and dramatic bump. First, ask the collection agency to agree to immediately report your updated paid-in-full status to the credit reporting agencies in exchange for your payment.

Defend Your Future Credit: Build Up Savings

If your credit is already in good shape, you can take action to keep it that way by using your stimulus check to create or grow an emergency fund. Whether it’s a job loss or an unexpected medical expense, an emergency will force you to turn to your credit cards if you don’t have cash on hand to cover the cost when the worst happens.

“If you don’t have any debts, you can use the inflation-relief payments to build up your savings,” said Linda Chavez, founder and CEO of Seniors Life Insurance Finder. “This will give you a financial cushion to fall back on in case of an emergency. It will also help improve your credit score if eventually you need to borrow money.”

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for, a financial publication in the heart of Wall Street's investment community in New York City.
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