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updated 4/6/2009 4:25:03 PM ET 2009-04-06T20:25:03

A recession-era warning: Be careful your efforts to cut spending don't slice into your credit standing too.

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Setting your credit cards aside and paying only with cash may be a great way to help rein in spending, but it can actually hurt your credit scores.

A lot of consumers aren't aware of that risk — and that typifies a gap in knowledge about credit scores, according to Liz Pulliam Weston, author of the newly updated edition of "Your Credit Score: Your Money and What's at Stake."

"There's a persistent idea that if you handle your finances responsibly, your credit scores will take care of themselves," said Weston, a nationally syndicated personal finance columnist. "That's not necessarily true."

Failing to fully understand the impact of credit scores can have especially adverse consequences during the current recession and credit crunch. Weston says that even people who never plan to take out another loan should pay attention to their scores and know how to fix, improve and protect them.

"Most of us need access to credit, or at least want to have the option of being able to borrow money should we need it," she said.

Here are some questions and answers from Weston's recent interview with The Associated Press.

Q: Have scores become important because of the troubled economy?

A: It's accelerated beyond what I could have expected. What's happened now with the credit crisis is that lenders are fleeing any hint of risk. So what we've got now is a real world of credit "haves" and "have-nots."

And the line for good scores has moved up. It used to be if you had scores of 700 to 720 and up, you got pretty good rates and terms. It's probably moved up now to where you probably want to have a credit score of 740 or above to get the best rates and terms, sometimes 760.

If you're in the 600s and below, all of a sudden you are in a world of hurt. You're having more trouble getting financing, you're paying more for it when you get it.

Q: What's the best way to boost your credit score quickly?

A: Paying down credit-card debt. There really is nothing that gives you more bang for your buck than getting those balances down.

If you pay your balance in full already, pay attention to how much of your limit you're using at any given part of the month, because typically the balance that's reported to the credit bureaus is the balance on your last statement. People regularly think, 'Well, if I pay it off it's showing a zero balance,' and that's not true.

And I recommend using 30 percent or less of your credit limit. If you can get it down below 10 percent, that's even better.

Q: How can consumers fight back against lenders who want to lower their limits or raise their rates?

A: If you have good credit and you get a notice that your limit's being lowered, call your credit-card issuer. You can take your business elsewhere — you're still in demand, and your card issuer should know that.

You might round up a couple other credit-card offers that are out there at places like Cardratings.com or Creditcards.com. And tell your issuer, "If you don't put my limit back I'm going to transfer my business to another card."

If your scores are under 700, start looking for other options. A good option might be to transfer that debt to a personal loan that you get from a credit union. Moving it to a personal loan actually will help your credit score because debt on installment loans, like personal loans, isn't counted as heavily against you as debt on credit cards.

Q: What are some of the common misconceptions about credit scores?

A: People think if they close accounts they can help their credit score. If you've already opened the line of credit, or the credit card, you've done the damage to your score. You can't fix it by shutting down the account, and you can do more harm.

Another thing that's very surprising to people is they think they have one credit score. You actually have many, many credit scores and they change all the time. There is one leading credit-scoring formula — that's the FICO. You have a FICO score from each of the three major credit bureaus (Equifax, Experian and Trans Union).

People also think they have the right to free access to their credit score, and that's not true. If you're going to pay for a score, you might as well pay to buy a FICO at MyFico.com (for $15.95).

Q: What are the most common mistakes people make involving their credit?

A: One big mistake is simply skipping a payment on a bill. Even one skipped payment can cost them 100 points, if they have a good score. So you really have to make sure that every one of your bills is getting paid every month.

Another is opening new accounts when they're in the market for a major loan. Especially with mortgages, people will start the process and then they'll go out and open up a Gap card to get the 20 percent off, and the ding on their credit could kick them out of consideration for the best rate. They might end up paying a higher rate simply for that one account. So I would say just wait until the loan closes before you go apply for more credit.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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