How to go about improving your credit score in order to better your credit-worthiness:

1.What exactly is a credit score:

According to a report by ET, an individual's credit score plays an important role in determining his/her credit worthiness. A lender, such as a bank or a non-banking finance company, will evaluate the credit score of a potential borrower to determine whether or not to lend to the individual. It typically ranges between 300 and 900. This score is prepared by TransUnion CIBIL, one of the four credit bureaus functioning in India (others bureaus include Experian, CRIF High Mark and Equifax). Here are five ways to improve your credit score.

2.Pay EMIs and credit card dues on time

Among all the parameters factored in by the credit bureaus (such as CIBIL), while calculating the credit score, regular and timely repayment of credit card dues and loan EMIs is widely believed to receive the maximum weightage. Hence, timely repayment of loans and credit card dues is the first step towards steadily building or maintaining one's credit score

3.Keep the credit utilisation ratio within 30 percent

Radhika Binani, Chief Product Officer, Paisabazaar.com says that lenders consider CURs above 30 percent as a sign of credit hungry behaviour and credit bureaus also reduce an individual's credit score by some points on his/her CUR breaching this mark.

4.Avoid multiple loan within a short period

Whenever one submits a loan or credit card application, the lender fetches the applicant's credit report from the credit bureau to assess his/her creditworthiness. Such lender-initiated credit report requests are termed as hard enquiries, each of which reduces the loan applicant's credit score by a few points. Instead of submitting multiple credit enquiries directly to lenders, loan or credit card applicants should visit online financial marketplaces to select the optimal credit card or loan option. Binani says, "Applying for credit card or loan through soft inquiries will not impact one's credit score."

5.Review credit report at regular intervals

Credit bureaus calculate the credit score primarily on the basis of information provided by lenders and credit card issuers. Any wrong information listed in the credit reports, either due to clerical errors by the lender/card issuer or any fraudulent credit transactions in the borrower's or cardholder's name can adversely impact the credit score. The only way to spot such wrong information is to fetch and review credit reports at periodical intervals.

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