One measure of Americans’ financial health has remained surprisingly steady during the economic downturn: the consumer credit score. As explained in Components of your FICO credit score, this score is used by banks and lenders to determine how much credit to extend to borrowers, and under what terms.

That is beginning to change, for a variety of reasons that have nothing to do with how you handle your personal finances or whether or not you’ve been responsible in maintaining your credit payments.

Banks and lenders are closing a record number of credit card accounts and reducing millions of dollars in credit lines. This results in consumer credit scores being reduced because of the diminishing credit lines. The domino effect continues, with individuals with formerly good credit scores being denied credit because of the reduced score, further reducing the score and hampering the ability to obtain credit from other lenders. The cascade effect continues, affecting such things as car insurance, where a consumer’s credit score is used to determine rates; and possibly affecting employment.

This raises a question about flaws in the consumer credit rating system. Consumers are seeing their FICO scores drop through no fault of their own.

Most likely, Fair Isaac will be watching to see how the economic downturn affects credit scores but it isn’t likely any changes will be made in the immediate future. Lenders, and others who utilize the scores to make financial decisions, may have to take a look at other economic indicators and place less emphasis on the FICO score.

CreditCheckFacts will continue to monitor the situation and report back.

Being in debt can be extremely stressful. The pressure of being in debt makes it hard to worry about everyday living expenses. If you’ve been receiving phone calls and letters from creditors it makes even worse. Sometimes debt can be so bad that you have to consider filing bankruptcy because of the debt load. Before the debt begins to pile up, there are warning signs that you could be headed for trouble.

• It becomes difficult to pay normal expenses.
• It becomes increasingly difficult to make ends meet each month.
• You are spending more money than you earn.
• You find yourself using credit cards to pay for normal expenses such as groceries.
• Your credit card balances continue to increase.
• You have several credit cards that are at or close to the credit limit.
• You begin decreasing your monthly credit card payments.
• You are juggling credit card payments, holding off one credit card to pay another.
• You dip into your savings to cover non-emergency expenses.
• You find it hard to save even the smallest amount of money each month.
• You are receiving calls or letters (or both) from creditors and debt collectors.
• You are unaware of how much you owe and are fearful of finding out.
• Credit cards become a necessity rather than a convenience.
• You have to borrow money to pay your monthly bills.
• You apply for new credit cards because you don’t have any money.
• You hide how much you are spending from your family and friends.
• You have recently been denied for a credit card or loan.
• You have no way of paying for unexpected expenses like car repairs.
• You have considered filing bankruptcy.
• You put off going to the doctor or dentist because you cannot pay the co-pay.

If you answered yes to one or more of these warning signs, then you could be headed for debt. Hopefully, you are early enough in the stages of debt that you can take preventative action.

Start budgeting. Chances are, if you’ve been having trouble paying bills and other expenses each month, you haven’t been living by a budget. What better time to start than now.

Cut back. Use your budget to evaluate your spending. Take note of leisure expenses such as movie rentals and restaurant dinners.

Get help. Seek out consumer credit counseling to assist you in paying off your credit cards.

One of the better ways to avoid debt is recognize and learn from the habits that lead to it. Gain knowledge of the behavior that can lead you to accrue debt so you know what you’re doing wrong and fix it. Don’t pay someone else to manage your debt for you – free debt management begins with the decisions you make about your own credit card and debt management.

Continually transferring your balances. Transferring balances on high-interest cards to lower-interest cards can be a helpful way to lower interest rates and therefore save money. It makes sense to take advantage of this leverage. On the other hand, it isn’t a good idea to keep transferring balances to cope with debt over long term. The savings from one card to another generally aren’t sizeable and there is a temptation to use the new card and overspend more, instead of paying down the balance. Be careful with your credit card management or it can be a costly mistake.

Late payments. Making your payments late costs more than you imagine. Not only are you obligated to pay a $39 late fee – that might have been used to reduce your balance – your interest rate will likely default to a higher rate, costing you more to carry a balance on your card in the future. Because of a universal default clause in your credit card agreement, other lenders might institute a higher interest rate, as well.

Minimum payments. When you pay only the minimum, you pay more in finance charges over the long run. The money you spend paying interest could be used to pay off your credit card balance, put into savings, or used to buy something you would like to have. Rather than pay the minimums on your credit cards, pay as much as you can each month, to avoid spending more money in interest charges.

Failing to notify creditors of problems or potential problems. Don’t be afraid to talk to your creditors if you see your economic situation taking a plunge. It’s best to bargain with them as soon as you see possible problems arising. Many credit card companies and lenders offer short-term services to customers, especially in challenging fiscal times. Don’t hesitate to contact them and ask for help!

Check your credit report annually. Avoiding checking your credit report because you are fatalistic about your ability to effect any changes isn’t a good idea. You must constantly be conscious of the creditors reporting debt and how much you owe them. Otherwise, debt can become even greater and before you know it, you have too much debt to be accepted for additional credit.

Put together a budget. A budget is an essential part of controlling expenses. Without a budget, you don’t have a solid way of controlling your spending. As a result, this can make it easy to spend too much money on unwarranted items. You should have a financial plan for all of your monthly, quarterly, and annual expenses. With a plan in place, you don’t have to fight to pay your bills when they come due.

In our next report, CreditCheckFacts.com will look at the 10 mistakes people make in managing their debt.

A good credit history is essential in today’s economy. Traditionally, you only had to worry about having a good credit history for credit cards and large purchases such as home and automobiles. However, good credit is vital in even the smallest financial transactions, like getting your utilities turned on or establishing cellular phone service. When you don’t have good credit, these service providers require you to pay a deposit to establish service. Start building a good credit history as early as possible to avoid paying hefty deposits.

Paying your bills on time is the easiest thing you can do to build a good credit history. Even bills that aren’t credit cards should be paid on time. While utilities and similar bills aren’t regularly included in your credit history, when unpaid, they can wind up on your credit report as a collection. Collections have a negative impact on your credit.

The timeliness that you pay your bills has the biggest impact on your credit history. When you are current on all your bills, lenders view you as less of a credit risk. This, in turn, will benefit you with lower interest rates than if you had delinquent payments in your credit history.

You don’t have to pay the full amount of your credit card balances each month, but you do need to make at least the minimum payment. Any time you pay less than the minimum payment, the creditor reports your payment as being late for that month.

Always be aware of your credit limit and balance for your credit cards. Be careful that you don’t go over your credit limit. When you exceed your credit limit, your creditor will charge an extra fee, in addition to your regularly scheduled payment. This extra fee can make it harder for you to make your minimum payment. Not only that, going over your credit limit will be included in your credit report. Future creditors will deem credit limit overages as an inability to handle credit.

If you have any credit cards that are not being used, and you don’t anticipate using them, these should be cancelled. Make sure the balance of the card is completely paid off before cancelling the credit card, to continue building a good credit history.

Credit card companies seldom teach first timers the proper way to use a credit card. Why would they? They make more money from people who don’t know exactly how to be responsible with a credit card. In all the excitement of receiving your first credit card, there are some common mistakes that you can avoid to ensure your credit remains favorable.

One of the most common mistakes that beginners make with credit cards is charging more than they can afford. At first, a credit card seems magical. You can purchase almost whatever you wish, without having to spend any of your money. This mentality is why many beginners max out their credit card within only a few months of receiving it. The best rule of thumb is to charge only what you can afford to pay. It may sound contradictory to the theory of a credit card, but it is the best way to keep your head above debt waters.

Another credit mistake that beginners often make is getting too many credit cards during a period of time. With all the pre-approved offers in the mail and store clerks asking you to get their credit card, it can be tempting to open several credit cards at one time. Many beginners think the more credit cards they have, the more they will be able to spend. While this is true, there is another side to that coin. The more you spend, the more you will have to pay. Chances are if you have several cards with balances, you will run into some difficulty making the payments. One or two credit cards are sufficient for someone just starting their credit history.

Paying the minimum payment only gets many beginners into more debt than they expected. When you make only the minimum payment it usually covers the interest and a small amount of the credit card balance. It could take years to pay off a balance as low as $300 when you pay the minimum payment. Although you don’t have to pay the entire credit card balance every month, you should pay a little more than the minimum balance. This is especially true if you are continuing to accrue new charges