Consumers Now Making Wise Credit Decisions

While Washington is pinning its hopes for a revitalized economy on the spending habits of consumers, financial experts are advising a halt to discretionary spending, and Americans are heeding the advice.

New reports show borrowing is down and savings are up – indicating the average American’s concern with being able to pay bills and maintain a good credit rating.

Many consumers are also taking advantage of free credit reports to keep a close watch on their FICO scores and to be immediately alerted to mistakes and signs of identity theft.

But there’s one decision conservative borrowers are making that could hurt even while it helps. That is the decision to move outstanding credit card balances from high interest cards to lower interest cards.

Consolidating balances in that way is smart in that it puts more dollars toward paying down debt and fewer dollars toward paying interest, but it could hurt FICO scores, and that could hurt in the long run.

Under the current FICO credit scoring system, your score will be better if your debt is spread out among all your available credit – so that you use no more than 30% of the credit available on any one card. In fact, some experts say you shouldn’t use more than 10%.

Even when your total debt remains the same, if it is concentrated in one card and that concentration brings your use of that card over 30%, your score will begin to fall. If you get up close to “maxing out” the card, your score will suffer even more – even if you have a zero balance on several other cards.

FICO is instituting a new scoring system this year, and this problem could be addressed, but we have read nothing to indicate that it will. So in the meantime, consider this move carefully, and take another step before you decide.

Before making any decision, contact your card issuers. Ask to have your interest and credit limits restored to their previous levels. If the first representative refuses to discuss it, hang up and call again. If you don’t get results, ask to speak with a supervisor.

If you’ve been a good customer – always paying on time – they should be willing to work with you. If they hesitate, let them know that you’ll be transferring your balance.

Your decision to consolidate will help you get out of debt faster, but it will lower your scores. So consider your plans for the coming months and decide if a temporary drop in credit scores will affect your life negatively. If not, then go for consolidation and get out of debt as fast as you can. your resource for free credit reports, credit cards, loans, and free credit repair advice.

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Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.