Things to do to improve credit score

Banks and financial institutions nowadays consider the credit score of a person applying for a loan to determine the creditworthiness of the person and, depending on the credit score, they decide whether to approve the loan application or reject it. Even if the lender decides to approve the loan, the credit score will determine the amount of loan and the rate of interest at which the lender will lend. Hence, it is important to ensure that the credit score is high enough to provide comfort to the lender about the creditworthiness of the borrower.

The two key factors that determine the credit score of an individual is the record of the borrower in repayment of previous loans and the credit utilisation ratio. If a borrower has missed payment of even one EMI of a personal loan or home loan or any other loan, it can adversely impact the credit score. Hence, it is absolutely essential never to default in payment of even a single instalment of any loan.

The credit utilisation ratio is used for creating the credit score of an individual. If a person is availing multiple loans or has a high usage of credit card limit, his credit utilisation ratio would be high. This would indicate that the person has a higher credit exposure on a consistent basis, which would lead to a lower credit score. To improve the credit score, therefore, the individual would have to trim down his expenses and reduce his borrowings.