The recent credit crunch has made a strong credit score more than desirable– it’s a necessity. With the gauge for minimum, moderate, and high scores being adjusted, it’s important to know what actions will affect your credit rating, especially when they seem like smart decisions.

Transferring Credit Card Balances

Even though it seems smart to transfer a balance from a card with a higher interest rate, it could negatively effect your credit rating in a number of ways. Simply opening a new card to absorb your debt will decrease your credit score. Additionally, a transfer will likely change your “credit utilization ratio,” which is the proportion of your available credit to your total credit. Furthermore, if you close the account that you’ve transferred the balance from, that can compound the damage to your score. You should always read the fine print for any balance transfer offer and keep in mind that the best way to combat credit score decreases is to pay off your balance in a consistent and timely manner.

Settling Debts

In the past, consumers were punished for paying old debts that were charged off and sent to collection agencies. While that is no longer the case, a settlement for less than what is owed can be worse than leaving an account open and unpaid. There is never an easy solution if you don’t have enough money to pay your bills but drastic measures, like filing for bankruptcy, are far worse than one or two unsettled accounts. A debt-repayment plan through a legitimate credit counseling agency is often the best way to plan a credit comeback.

Using “Limitless” Cards

While it takes a solid credit score to qualify for a “limitless” MasterCard or Visa, some credit card companies do not report a consumer’s actual credit limit but instead use their highest daily balance, which throws off the credit utilization ratio. By taking advantage of your annual free credit report, you can monitor your reported limits and any other facts regarding your credit report. There are avenues for disputing any wrong or misleading information if you need to.

For information on how to get a free credit report, visit the FTC website here.

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