Managing your credit score requires action

updated 4:25 p.m. ET April 6, 2009

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

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.

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