How does the credit rating affect you?

BUFFALO, N.Y. (WIVB) - America's gold-plated credit rating is no longer King of the Hill.

Standard & Poor's downgraded the nation's rating leaving many Americans wondering what this means for them.

In the short term, this probably won't mean much for the average American, like you or I.

Any impact it does have will be slight, compared to the economic turmoil we've weathered over the last three years.

It sounds counterintuitive, but Standard & Poor's downgrading of the United States' credit rating probably isn't going to have much of a trickle-down effect on the average consumer at least, not immediately.

The main consequence is that it's now going to cost the federal goverment more to borrow money; just like an individual whose credit score has fallen, the government will have to pay higher interest rates.

You can think of it using this analogy, from UB Finance and Economics professor, Larry Southwick.

Larry Southwick said, "Consider a family that has increased its debt from about 60% of its annual income to 100 percent of its annual income, and is on-track to increase it by another 20% of its annual income, near-term. Now, this family has just applied for a new credit card. What do you think?"

What's more likely to impact consumers directly is the fear financial institutions are now feeling.

"Possibly, there will be some additional hesitation in lending to individuals. We're already seeing that, partly due to the new rules on banking. That's made people less willing to lend," added Southwick.

That fear may lead some banks to increase lending rates overall, jacking up the interest on everything from mortgages to credit cards, again, only by a couple of percentage points.

The long-term consequences are much more dire.

Southwick says if the government simply continues to raise the debt ceiling without cutting spending, America could become insolvent, the way Greece did last year.

It's easy to get caught up in the cycle of fear, but Southwick and other experts all say the best thing you can do is not panic.

If you're an investor, resist the temptation to start reshuffling your portfolio.

And only change your spending habits if you already needed to become more prudent with your money.