05/17/2012 01:04 pm ET

Tax Returns: What Will You Do With Found Money?

I recently cleaned out my car and found some spare change under the seat. It wasn't much -- maybe enough to get a soda -- but it felt like a win because it was money I didn't know I had. It was "found money".

Has that ever happened to you? Maybe you moved the cushions on your couch and found some loose change, or maybe in the fall you pulled out your winter coat and discovered $20 you had left there when you put the coat away last spring. It's all found money -- money you forgot was yours.

It's tax season, which means that many Americans will be getting tax refunds from the government... and tax refunds are "found money" -- money you forgot was yours. It's as if the government lifted up your couch cushions and found a few hundred (or sometimes, a few thousand!) dollars that you didn't think was yours.

So the question is: What are you going to do with that "found money" sent to you by Uncle Sam?
With the spare change in my car, I might have enough to buy a soda. With that $20 in your winter coat, you might splurge on lunch. But what about with the (possibly) hundreds of dollars you receive in tax refund? It can be tempting to spend that found money on a treat -- maybe a big-screen TV or plane tickets to somewhere tropical or a pedicure (and a cute pair of shoes to show off the pedicure).

Those treats sound great, and they sort of take away some of the pain we might have felt in filling out the complicated tax forms (or paying someone else to do it). But is that really what you should be doing with that much found money?

Here's what I advise instead: In my book The 90 Day Credit Challenge, I list several things you need to do to achieve good credit and maintain it.

If you are just starting to work toward better credit, here's what you should: With your unexpected "windfall" of found money, you should use that money to improve your credit score: Pay off some credit card accounts or lower the balances on them!

If you have been working toward better credit and want to maintain or improve it, use that money to pay your credit cards down to within 20 percent of the credit limit (or pay them off completely).

Okay, I realize that I might sound like a killjoy by writing this because, let's be honest, a big-screen TV or a tropical vacation or a pedicure sound way better than paying off debt. But instead, think about it like this: You are investing your found money into a better credit score... and a better credit score translates into more credit at a lower rate. So when you do need another loan (such as a mortgage or a new car financed, for example), you'll pay less interest; and when you pay less interest, you save more money; and when you save more money, you can spend that on your TV, vacation, pedicure (or anything else for that matter).

That tax refund check might be found money but the best thing you can do for yourself is use that money to "invest in a better credit score." You might miss out on a pair of cute shoes this summer but it translates into MANY more pairs of shoes in saved interest payments over the long term.