Top 10 Ways to Start Building Credit Today

  • Raise Credit Score

Are you wondering how to start building credit? It can feel like a Catch-22: If you want a loan you need a good credit score, but to get that score you need to prove you can meet loan repayments. In practice, it’s a little more logical and there are numerous ways you can build credit with or without a good FICO Score.

Check Your Credit Score Report

Stop rolling your eyes! We know you’ve probably seen this “tip” before and we understand why you might be tired of seeing it. But you may also be surprised to know that millions of Americans don’t check their credit scores regularly and many have never seen them at all.

You wouldn’t apply to a job without thoroughly checking your CV, and by the same extension, you shouldn’t apply for credit without checking your credit report. It’s free, quick, easy, and it will give you invaluable insight into your financial situation.

Apply for a Secured Credit Card

A secured credit card functions much like a prepaid card: You load your money onto it and then you use the card to spend that money. It is “secured” against your deposit, which means the provider doesn’t take a risk and you can acquire one even if you have no credit or bad credit.

Most providers report to the major credit bureaus and offer additional perks several months down the line, including unsecured credit cards.

Focus on What you Have

There are numerous ways you can build credit without applying for any additional loans or credit cards. You will need to have existing credit, however:

  • Increase Limits: Nearly a third of your score is calculated based on credit utilization, which is your available credit versus your used credit. A quick way to improve this aspect of your score is to increase credit card limits. Contact your provider to make this request. They will run some affordability checks and then make an offer. There should be no extra charge or penalties, and that additional credit (providing it’s not used) will increase your score.
  • Pay-Off: it’s an obvious one, but worth mentioning nonetheless: The higher your repayments, the less your debt and the higher your score. You should always meet minimum repayments, that’s a no-brainer, but by paying additional amounts every month, or as a lump sum, you can build your credit faster. It will improve your used credit ratio and reduce your debt, massively impacting your credit score.
  • Avoid Rash Decisions: Debt settlement, bankruptcy, and consolidation loans are great if you need them and are struggling. But they’re not for everyone and shouldn’t be seen as a Get Out of Jail Free card. Only use them if you need to and exhaust all possibilities before you reach that point as they can damage your credit for years to come.

Become an Authorized User

You can increase your credit limit, and thus improve your credit utilization ratio, simply by adding yourself as an authorized user on a partner’s/relative’s account. You don’t need to actually use the card. Just find someone who is responsible and happy to help out and ask if you can be added.

Make sure they have a good credit history and are not heavily in debt, otherwise it may do more harm than good.

Get a Co-Signer

Parents, grandparents, friends, partners—anyone who is financially responsible can help you by becoming a co-signer. The co-signer essentially assumes all responsibilities should you default on the loan, which means you get a line of credit that may otherwise be refused.

Your odds of being approved will greatly increase but you will need to find someone who trusts you and is prepared to make a potentially risky decision to benefit you.

Get an Auto Loan

Auto loans are some of the easiest to acquire because the lender can use the car as collateral. If you don’t meet the repayments, they’ll simply take back the vehicle and leave a big, ugly mark on your credit report. If you do, then your score will gradually improve.

If you’re in the market for a new vehicle, shop around and get yourself a low-interest rate installment plan. It may feel like flushing money down the drain, especially if you had planned to pay in cash, but it will help you to build credit and make future credit applications much easier.

Make Sure Your Repayments are Reported

Credit isn’t built automatically. Your credit report compiles information from lenders and updates on a monthly basis. If those lenders don’t “report” to the credit bureaus, then that information won’t be available and won’t appear on your credit report.

If you’re paying a debt or an installment plan that isn’t shown on your credit report, then contact the lender and ask them to pass the information on. All credit cards and loans should be reported regardless, but the same can’t be said for utility companies and landlords.

Try a Lending Circle

There are a multitude of non-profit lending circles that can help you build credit. They provide small loans to borrowers on low incomes and they report payment histories to the major credit bureaus. You can get the money you need for a major purchase as well as a guarantee that your repayments will be recorded and your credit will improve.

Apply in Batches

Hard inquiries should be avoided where possible as they can reduce your credit score for up to 12 months. However, if you apply for multiple loans in a short space of time it’s dismissed as “rate shopping” and your score will take just a single hit. So, if you’re applying for a new personal loan, credit card, auto loan, or mortgage, make sure it takes place within this time period.

Protect Yourself from Fraud

Many credit reporting agencies now provide fraud detection as a premium service. Last year, Americans lost close to $1.5 billion to fraud, an increase of more than a third from the previous year. It’s much more common than you might realize and if it happens to you then it can destroy your credit.

Some users don’t discover they are the victims of fraud until several years after it has happened, which is why it’s important to stay on top of things. A fraudster can steal your identity and use it to take out loans, credit cards, and more. All of this will hit your credit report and undo all of your hard work.

Fraud detection services can warn you when this is happening and help to put a stop to it. They can also detect when your name, address, email, and other personal details are being sold on the Dark Web.


Does Checking Your Credit Lower Your Credit Score?

Everyone knows how important your credit score is — from getting approved for a credit card to getting lower interest rates on loans. It’s important to keep your credit score up so you can get the best credit offers.

what's your credit score?

Even if you don’t need to access that credit right now, you should be prepared for when an emergency arises and you could use some extra funds.

While checking your credit score helps you know where you currently stand and how you’re improving over time, some types of credit inquiries can cause damage. Learn the differences between each type of credit check so you can keep your credit score as high as possible.

What’s the difference between hard inquiries and soft inquiries?

A credit inquiry happens when you, a lender, or other third party requests a copy of your credit report from one of the three major credit bureaus: Experian, Equifax, or TransUnion.

They can then use the data on your report to generate customized credit offers, confirm your personal information, and more. Exactly who can access your credit report is regulated by the Fair Credit Reporting Act (FCRA). You can also authorize others to view your credit report if you wish.

There are two different types of credit inquiries: hard and soft. The difference comes from who exactly is accessing your report and why.

Hard Inquiries

Typically any application for credit you make will result in a hard credit inquiry.

This can include credit card, personal loan, mortgage, and car loan applications. Collection agencies may also access your credit report to try and find your location, resulting in a hard inquiry.

Soft Inquiries

A soft inquiry, on the other hand, typically occurs as part of a background check rather than a full credit analysis. Applying for a pre-approval from a creditor to get a rate quote is one of the most common reasons for a soft inquiry.

However, soft inquiries can also be performed even if you aren’t applying for credit. For example, they can be used as part of the screening process for potential landlords and employers.

Insurance companies, utility companies, and cell phone providers, for example, may also check your credit However, those inquiries don’t result in accumulating new debt. They’re considered soft inquiries.

Finally, checking your own credit score only counts as a soft inquiry. Checking your credit score does NOT hurt your credit score as long as you are not actually applying for a loan.

You don’t ever want to apply for credit just to check your credit score. If you do, it counts as a hard inquiry. However, if you buy your credit score from myFICO or get it for free at any of the sites offering free credit scores, it will not count against you.

See also: 13 Credit Cards Offering Free FICO Credit Scores

Potential creditors can perform a soft inquiry to help tailor customized credit offers for you based on your credit profile. That’s how you end up with pre-approval offers in the mail for credit cards, personal loans, and refinancing.

If you don’t want those creditors accessing your information and filling your mailbox with junk mail, you can opt-out by visiting

How do inquiries affect your credit score?

Hard inquiries impact your credit score in a few different ways. First, all hard pulls stay on your credit history for two years. They’re individually listed in a section towards the end of your credit report.

Each one causes a slight dip in your credit score, though usually no more than five points or so. Credit inquiries stay on your credit report for up to 2 years. However, the damage only lasts for about a year.

Recently, credit scoring models have changed to accommodate consumers’ tendencies to shop around for offers. For example, if you’ve made several car loan inquiries within a short period of time, usually within 30 to 45 days, they will only count as a single hard inquiry.

Lenders still see each inquiry, but this typically doesn’t cause alarm since it appears you’ve only been shopping around for the best rates.

Do credit card inquiries hurt my credit score?

Too many credit card inquiries, can raise a red flag when a potential lender is reviewing your credit report during the application process. This is true for a couple of different reasons.

First, credit card inquiries aren’t usually lumped together as part of rate shopping. The other worrisome part for lenders is that it can take time for a new line of credit to show up on your credit report. Lenders may not feel confident that all of your current accounts and balances are listed on your credit report.

You could potentially have new credit cards and outstanding balances, making the lender’s debt to income ratio calculations inaccurate. There’s just no way for them to know. So, it’s ideal to stop applying for credit cards well before you need to apply for other types of loans.

The good news is that soft credit inquiries don’t have any effect on your credit score at all. That’s why shopping for credit through pre-approvals is a safe way to find the best rates and terms. It allows you to get rates from as many lenders as you’d like without hurting your credit.

Future potential lenders can’t see soft inquiries on your credit report. They don’t use that information when evaluating your application.

Can you dispute a hard inquiry?

Yes, hard inquiries can be disputed if you think one or more have been inaccurately listed on your credit report. According to the FCRA, creditors must receive your authorization before conducting a hard inquiry. If you’re considering disputing any inquiries, start off by checking all three credit bureaus.

Not all creditors report to all three bureaus, so the information could be listed differently on each one. Plus, each credit bureau has its own dispute process. So, successfully disputing an inquiry on one report will have no effect on the other two.

Contact the Creditor First

If you don’t recognize one or more of the inquiries listed on your credit reports, start by contacting the creditor directly. It’s best to write a formal letter and request a return receipt via certified mail. That way you can keep extensive records and time the company’s responsiveness.

They are required by law to provide proof that you authorized the inquiry through a credit card application or some other type of documentation. If they can’t, they must instruct the credit bureau to remove the inquiry from your credit report.

File a Credit Bureau Dispute If Necessary

Often, the credit card company may just remove it rather than going through the hassle of digging up old paperwork. If you have difficulty working with the credit card issuer, you can also file a dispute directly with the credit bureau.

When deciding whether or not to dispute hard inquiries, look at your overall credit situation. It may not be worth your time if you only expect to get one or two inquiries removed. After all, that will probably only result in an increase of a few points.

If you have significant negative items on your credit report, your time may be better spent concentrating on getting some of those removed.

Still, you might want to remove inaccurate hard inquiries if you are about to apply for a major loan and want your credit history as clean as possible. That way you don’t have to worry about the lender seeing so many inquiries listed over the last two years.

How can you safely monitor your credit score?

When you’re trying to raise your credit scores, it’s important to check it regularly to see which of your financial behaviors are having a positive impact and which ones are causing damage.

Checking your own credit report doesn’t affect your credit scores and neither does signing up for a credit monitoring service. You get regular updates on your progress. Plus, you can also feel safe knowing that you’ll quickly be able to detect any potential identity theft or fraud.

For a comprehensive list of the best credit monitoring services available, check out our reviews.

If you’re simply interested in getting your credit score on a regular basis, ask your bank or credit card company if they offer a free credit check service. You might get access to your credit scores each month as part of your member benefits.

Understanding how credit inquiries work can save you a lot of grief and aggravation when it comes time to apply for new credit. Check your credit reports at least once a year to make sure you stay on top of any inaccuracies or errors, then follow up with any incorrect information you find.

By keeping your credit report and your credit score clean and up to date, you’ll have an easy time the next time you need to get a loan or new credit card.

Credit Bureau Contact Information For 2021

There are a number of reasons why you might need to contact the major credit bureaus. Perhaps you want to dispute a negative item or request a freeze on your credit report.

typing a letter

Even if you have good credit and don’t need to review or dispute any negative items, it’s a good idea to monitor and keep copies of your annual credit reports.

As a consumer, this helps to ensure fair credit pricing while also protecting you against identity theft.

Reviewing your free credit report also lets you know where you stand credit-wise and allows you to check for any potential problems you might not be aware of. Mistakes happen and the sooner you can catch them, the better off your credit will be.

Where to Go for Your Free Annual Credit Report

If you’re looking for your free credit report from each of the big 3 credit bureaus — Equifax, Experian, and TransUnion — you can get free copies at

The website is operated by the three credit bureaus and is authorized by federal law. You can access each of your credit reports once every 12 months for free. So if you order a copy of your credit report on September 30, you can’t get another one until October 1 of the following year.

After that, you can pay to receive more frequent copies, which usually cost around $15 each, or you can typically order all three together for a discounted price. You might find this helpful if you’ve requested changes to your credit reports or filed a dispute and want to confirm that the information has been updated.

Benefits of Paying for Your Credit Report

It may be wise to pay for your credit report if you need a faster dispute process. Normally, credit bureaus have 30 days to investigate a dispute. But if you get your credit report for free from, they have 45 days to respond.

Sometimes you need to contact the individual credit bureaus concerning specific issues. This may involve various kinds of misreported information or negative items you want to clear up.

Additionally, you can contact each credit bureau to place a fraud alert or security freeze on your credit report. Fraud alerts stops anyone from accessing your credit reports for a new inquiry, which can cause fraudulent applications to be denied instantaneously. This service is now free from the credit bureaus.

No matter what your concern may be, it can be hard to get a real person on the phone. But if you’re persistent, you can always find a way. If the main numbers you find online won’t allow you to connect with someone, look up the company’s local corporate headquarters and call them directly. Ask to speak with a customer service agent to quickly get someone on the line.

With that said, we find that the best way to contact them is usually by mail.

Credit Bureau Addresses

The following information for contacting Equifax, Experian, and TransUnion is accurate as of the publishing of this article. However, this information may be updated as these mailing addresses are known to change often.

When it comes to mailing addresses, corporate headquarters aren’t the right addresses to write to concerning questions about individual accounts. Before sending the credit bureaus a letter, you may want to verify the information to make sure you’re addressing your letter to the correct department.

You can always refer to each credit bureau’s website to get up-to-date contact information or to find online forms. It’s useful to note that the credit bureaus prefer that you contact them by phone first.

When you speak with an agent, they’ll give you the best address to use for your particular issue. You may also wish to read each credit bureau’s website to find specific numbers other than the general numbers provided below. Either way, this is a great starting point to get connected to the right place.


Mailing address:

Equifax Information Services, LLC
P.O. Box 740256
Atlanta, GA 30374-0256

Phone numbers: (888) 298-0045 (for customer care) or (800) 349-9960 (for security freezes)



Mailing address:

P.O. Box 4500
Allen, TX 75013

Phone number: (888) 397-3742 (for disputes)



Mailing address:

TransUnion LLC
P.O. Box 2000
Chester, PA 19016-2000

Phone number: (800) 916-8800


Other Credit Reporting Agencies

While Innovis is not one of the three major credit bureaus, consumers have increasingly found it important to keep tabs on Innovis credit report, especially given their relationship with Fannie Mae and Freddie Mac.

This company primarily serves to sell lists to creditors (including mortgage lenders) of creditworthy and non-creditworthy individuals.

You can access reports and request changes just as you would with any of the three major credit bureaus. However, you’ll have to call the national opt-out number (1-888-567-8688) to have your name and number removed from their lists.

For free reports, contact:


Mailing address:

Attn: Consumer Assistance
P.O. Box 1640
Pittsburgh, PA 15230-1640

Phone number: (800) 540-2505


For Innovis corporate headquarters, contact:

250 E. Town St.
Columbus, Ohio 43215

PRBC Inc. (Payment Reporting Builds Credit)

A fifth credit reporting agency is PRBC Inc., which performs the same functions as the other CRCs. However, it also allows consumers to build reports and a positive credit history using alternative data, such as utility bills and insurance payments.

PRBC Inc. uses information not always reported to the other credit bureaus, allowing consumers to rebuild a positive credit history. The company is owned by MicroBilt Corporation.

MicroBilt Corporation

Mailing address:

1640 Airport Rd, Suite 115
Kennesaw, GA 30144

Phone number: (800) 884-4747


When contacting the credit bureaus by phone, you should have some things ready. You will need to give them your full name, date of birth, address, phone number, and social security number.

Additionally, they will probably ask you some security questions about your credit history to verify that it’s you.

When contacting the credit bureaus by mail, you will need to include the same information as stated above, plus a copy of a government-issued identification card, such as a driver’s license, passport, or state ID card. You will also need to include a copy of a utility bill, bank statement, or insurance statement.

The Best Apps on the Market to Learn About Your Credit – Lexington Law is owned by Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.

It’s difficult to stay on top of your credit score even during the best of times, and it only gets harder during times of financial crisis. While you may be able to regain ground on your credit card debt or mortgage loan after a missed payment, your credit score will take a hit. Even after you’ve gotten control of your finances again, the damage to your credit score will take quite a while to recover from. 

It’s important that you not only track your budget, but also closely monitor your credit score and take advantage of any opportunity to build credit. To assist you, we’ve researched different credit score management apps that can support your credit in a variety of ways. Some provide credit monitoring, opportunities for improving your credit score, credit protection and support for credit repair. 

Here’s our list of the most secure, easy-to-use and beneficial apps for managing your credit score.

Extra Credit is a brand new offering from just launched to the public, but we are excited about its features. Those features include “Reward It,” which awards you funds when you are approved by a qualified lender through Extra Credit. 

Additionally, when you sign up for Extra Credit, you get access to the 28 most commonly used FICO® scores as well as your credit reports from all three bureaus and recommendations for credit cards based on your credit profile. Finally, Extra Credit provides you $1,000,000 in ID theft insurance, dark web monitoring and access to a third party service that reports your monthly rent and utility payments to the bureaus.

Unlike many of the apps on this list, however, Extra Credit is not a free service.

Experian allows you to monitor your Experian credit report and your FICO credit score, manage disputes with Experian and be aware of any new credit activity. Experian’s mobile app also comes with the Experian Boost feature, which allows you to report payments to the credit bureaus that would not usually be reported—such as cell phone bills and utilities—and potentially improve your score. 

Experian’s app provides services that you can use to improve, monitor and repair your credit. Keep in mind that these services are specific to your credit history as managed by Experian, one of the three credit bureaus that track your credit history. Although Experian allows you to look at your FICO score—the credit score that most lenders use—it doesn’t allow you to manage the credit reports compiled by TransUnion or Equifax.

The FICO credit scoring method is the most popular method among lenders for calculating credit scores. MyFICO allows you to see and manage the score that your lender will most likely consider when you apply for a mortgage or an auto loan. 

MyFICO also allows you to view your updated credit reports from all three bureaus—Experian, Equifax and TransUnion. Additional features included are a credit score simulator, which allows you to see how possible actions could affect your score, credit monitoring, and credit education resources. 

MyFICO is a good choice for users looking for a credit monitoring service, but it does not provide as many resources as other apps to assist with credit score improvement or repair.

Mint predominantly focuses on budget management, but it also offers tools for monitoring your credit score and weighing it as a factor in your financial decisions. You can view your VantageScore credit score and TransUnion credit report in the app. Additionally, you can personalize alerts to stay up to date with any changes to your credit score or potential fraud or identity risks.

Mint offers more resources for setting financial goals, managing your budget, and keeping track of bills than it does for directly managing your credit score. It can be used as a credit monitoring tool, but bear in mind that you will only be able to see your TransUnion credit history.

The TransUnion app works in tandem with your TransUnion Credit Monitoring Account. It allows you to monitor your credit score and TransUnion credit report, both of which are updated daily. The TransUnion app also offers Credit Lock Plus, which allows you to “lock” and “unlock” your TransUnion and Equifax credit reports. In addition, TransUnion provides identity theft insurance.

The app will only allow you to see your TransUnion credit report and manage the credit score based on your TransUnion credit history. It will not give you a complete picture of your credit history.

Lock & Alert is good for protecting your credit activity through Equifax. It allows you to easily “lock” and “unlock” your credit report—a much easier process than requesting a freeze be placed on your account, or lifting a freeze. 

The Lexington Law app works in tandem with your online account, allowing you to stay up to date with recent developments on your case while on the go. Lexington Law has one of the few credit management apps that allows you to view your credit history from all three credit bureaus, giving you the most complete snapshot of your credit. You can track any credit disputes currently in progress, see your most up-to-date FICO credit score and set up personalized alerts. Lexington Law also provides identity theft insurance and identity theft alerts. 

Although the Lexington Law app is free to download, you will need to pay to set up an account in order to use it.

Apps to Improve Your Credit Health

As you can see up above, different apps have different strengths. Your financial situation is unique, and the app that you choose will depend on your circumstances. However, each of the apps we have listed above will allow you to be more engaged in managing your credit score. Your credit is not beyond your control—there are resources available to you that can help you protect, build and repair your credit. 

If you’re trying to be more engaged in managing your credit or need help knowing where to start, contact our experienced credit consultants.

This article was reviewed by Daniel Woolston, an Assistant Managing Attorney at Lexington Law Firm. This article was written by Lexington Law.

Daniel Woolston is the Assistant Managing Attorney in the Arizona office. Mr. Woolston was born in Houston, Texas and raised in Sugar Land, Texas. He received his B.S. in Political Science at Brigham Young University and his Juris Doctorate at Arizona State University. After graduation, Mr. Woolston worked as a misdemeanor and felony prosecutor in Arizona. He has conducted numerous jury trials and hundreds of other court hearings. While at Lexington Law Firm, Mr. Woolston dedicates his time to training paralegals and attorneys in credit repair, problem solving, and ethical and legal compliance. Daniel is licensed to practice law in Arizona, Oklahoma, and Nevada. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.


Senate Passes $3,000 Child Tax Credit for 2021

An expanded child tax credit for 2021 is about to become law. After some procedural wrangling, the Senate narrowly approved President Biden’s stimulus package to help tackle the coronavirus pandemic and stimulate the economy. Because the Senate made some changes to the House-crafted bill, titled the American Rescue Plan Act of 2021 (“American Rescue Plan”), the House will have to revote on the revised bill before sending it to Biden’s desk for his signature. We expect that will happen next week. One provision in the American Rescue Plan would, for one year, expand the child tax credit and make it fully refundable.

Presently, the child tax credit is worth $2,000 per kid under the age of 17 whom you claim as a dependent and who has a Social Security number. To qualify, the child must be related to you and generally live with you for at least six months during the year. The credit begins to phase out if your adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these people must also have earned income of at least $2,500 to get a refund.

The American Rescue Plan would temporarily expand the child tax credit for 2021. First, the plan would allow 17-year-old children to qualify. Second, it would increase the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it would remove the $2,500 earnings floor. Fourth, it would make the credit fully refundable. And fifth, it would allow half of the credit to be paid in advance by having the IRS send periodic payments to families from July 2021 to December 2021.

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Phase-Out for Wealthier Parents

Not all families with children would get the higher child credit. The enhanced tax break would begin to phase out at AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. Under the proposal, the IRS would look to the 2020 return to determine eligibility for the credit. If a 2020 return has not yet been filed, the IRS would look to 2019 returns. Families who aren’t eligible for the higher child credit would claim the regular credit of $2,000 per child, less the amount of any monthly payments they got, provided their AGI is below the current thresholds of $400,000 on joint returns and $200,000 on other returns.

Periodic Payments in 2021

Regarding the advance payments, the plan calls for the IRS to send out a check (mainly in the form of direct deposits) periodically from July through December to families. These periodic payments would account for half of the family’s 2021 child tax credit. For example, if monthly payments were made, this would result in payments of up to $250 per child ($300 per child under age 6) for six months and would be a nice windfall for many families. Take a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn’t opt out of the advance payments, they could get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 return next year. (Use our 2021 Child Tax Credit Calculator to see how much you would get per month under the current plan.)

Democratic lawmakers want the IRS to start making the payments to eligible Americans in July, giving the agency just a few months’ lead time to set up its computer systems to handle such a massive, but temporary, new payment program. The American Rescue Plan also calls for the IRS to develop an online portal so that individuals could update their income, marital status and the number of qualifying children. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return could do so through the portal.

Some Overpayments Would Not Have to Be Paid Back

With advanced payments of the child tax credit, there will sure to be instances in which families receive more in advanced child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplates this by providing a safe harbor for lower- and moderate-income taxpayers.

Families with 2021 adjusted gross income below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return would not have to repay any credit overpayments that they get. On the other hand, families with 2021 adjusted gross incomes of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return would need to repay the entire amount of any overpayment when they file their 2021 tax return next year. And families with 2021 adjusted gross incomes between these thresholds would need to repay a portion of the overpayment.

Is the IRS Up for the Challenge?

Many tax experts and some lawmakers question whether the IRS, with its out-of-date computer systems, shrunken work force and its myriad of other duties, would be fully able to deliver periodic child credit payments, especially if the expanded child tax credit and advance payments are eventually made permanent, which could very well happen. Some Senate and House Democrats are already talking about making this permanent, touting the potential impact that a fully refundable, expanded child tax credit would have on reducing child poverty.

Setting up a new program to deliver regular payments to taxpayers who must meet complex eligibility requirements to qualify for the child credit will be a challenge for an agency that is not used to sending out periodic payments. The IRS would need more funding for such a big undertaking. The House bill authorizes an additional $400 million for the IRS to take on the additional work, but some experts question whether this is enough. The IRS says that to facilitate advanced payments of the credit, it would have to build a system to compute and recompute payments as taxpayers provide new information. Such a system must also be able to issue and track payments, as well as to reconcile all payments sent out to each taxpayer during the year with the taxpayer’s credit taken on the tax return. The agency would also need to develop a program that would flag returns that don’t accurately include all advance payments received during the year.

Another issue that the IRS will have to deal with is how to minimize the potential for fraud when it comes to refundable child tax credits. For example, the IRS estimates that in 2019 it improperly paid $7.2 billion in such refundable credits.