A good credit score is vital for the growth of any business as well as for the finances of any individual. Sooner or later one needs to borrow money from the bank, whether it is for further development of a business venture or for the construction of a home. Having a bad credit score discourages banks from lending any money to that particular individual or company as it is a reflection of poor financial management. Lenders, especially banks, consider this a sign of potential defaulting on payments. Naturally this is not in the favour of the lender and thus, carries a higher chance to the decline of a loan request.

However, all is not lost. By being financially wise, a bad credit score can over time be converted to a positive one. While there is not one solution that works with every situation, by following some basic guidelines, the credit score can be improved. One thing to keep in mind though is that it does not happen overnight but requires quite some time to reach a stable positive level. Some guidelines are listed below:

  • Pay your bills on time

As simple as it may sound, paying your bills on time has a wonderful ripple effect on your finances and helps you lift your credit score in the long run. When you pay all that you owe before the deadline, it helps clear the books and easily determine what the actual profit was for a specific date range. It further enables you to look deeper into your expenditure and cut back on unnecessary expenses, just so you can ensure that you have the required amount to pay your bills/overhead. Outstanding payments affect your credit score negatively, so aim for reducing the amount of outstanding payables as much as you can.

  • Keep your credit card balances low

Apart from paying your bills, including your credit card bills on time, it is essential that you keep your credit card balances low. Make transactions using your credit cards only when necessary and make sure that you are not spending beyond your limit. The ratio of your revolving credit to how much you actually use should be kept as low as possible as that reflects on your credit score as well. This should be kept lower, especially if you’re trying to improve your score.

  • Manage your credit cards carefully

Avoiding over spending is not the only thing when it comes to credit cards. You should also be careful with certain other things. For example, if you have more than one credit card, try to use only one and keep the other unused. You do not necessarily have to cancel the ones that you are not using. This way the revolving credit versus actual credit usage ratio will be low. In fact, if possible you should ask to have your credit ceiling raised. But this should only be done if you are completely sure that you will not spend more than before. If you do then you will be back at the position of having a higher revolving credit to usage ratio. Therefore, contrary to what you may think, closing accounts can affect your score negatively. Furthermore, always protect yourself from credit card fraud so that you reduce the risk of any theft on your cards – in the worst case scenario this can entirely hinder your movement towards a better score.

Improving a bad credit score is not an impossible task. It requires a lot of determination, meticulous budgeting and financing, shrewd scrutiny of expenditure and most of all a lot of patience. Technically you are rebuilding your credit score history and not your actual credit score. You are showing an improvement in your personal finances over a period of time that reflects in your credit score history. For this reason you need to research the rules and regulations governing credit score in your area’s legislation to see how long it would take for your new positive financial habits to reflect on your score. Good planning and a strong willed determination can get you out of the slump, slowly but surely.