# **Understanding Credit Scores and How to Improve Them**

Lenders check borrowers' credit scores, among other things, before approving their loan applications. Hence, before applying for a loan, it is advisable to take steps to improve one's credit score. Simple steps, such as paying loan EMIs and credit card bills on time, can help improve one’s credit score.

Having a strong credit score shows lenders that one is a reliable borrower and will repay their loan. This score is generated by credit bureaus, like the Credit Information Bureau (India) Ltd (CIBIL). It can be very difficult to get a low CIBIL score loan Today, it is extremely crucial to have a strong credit score to secure loans with favourable terms.


## What is a Credit Score?

● A credit score is the numerical representation of one’s creditworthiness, and generally ranges from 300 to 900. The higher the credit score a person has, the greater their chances of qualifying for a loan with low interest rates and favourable terms. Credit score is calculated on the basis of the financial behaviour, including their outstanding debts, credit utilisation and outstanding debts. When a person applies for a loan, the lender is likely to check their credit score and history to evaluate their financial reliability. A low credit score can lead to loan rejection or higher interest rates, thereby increasing the financial burden of the borrower. Hence, before applying for any loan, one must [check credit score](https://www.muthootfinance.com/cibil-credit-score) and try to improve it as much as possible.

## Tips To Improve Credit Score
● Check Credit Report for Errors: First of all, one should obtain a soft copy of their credit report from any of the prominent credit bureaus in India, like CIBIL. It is imperative to scrutinise the credit report for any inaccuracies or mistakes, like wrong personal details, incorrect late payments, open loans, and more. If any inaccuracy is found, one must get it rectified as soon as possible, as such mistakes can bring down one's credit score.

● Pay Down Existing Debt: High credit utilisation hurts the credit score. Hence, one should try to reduce their outstanding balances, particularly on credit cards. Paying credit card bills on time demonstrates responsible credit management and has a positive impact on one’s credit score.

● Timely Bill Payments: Paying bills on time is crucial, irrespective of the kind of credit one has availed. People applying for any loan must be clear about their repayment plan right from the start. It would be a good idea to set up auto-debit instructions to avoid missing EMI payments. Loan payment history constitutes a major portion of the credit score calculation.

● Maintain Older Credit Accounts: The length of their credit history plays a major role in determining what kind of borrower one is. Keeping older credit accounts active, even with minimal usage, can have a positive impact on the average age of the credit accounts and would boost one’s credit score. It would enable the lenders to see the borrower’s dedication towards making on-time repayments.
By following the simple yet effective tips discussed above, one would be able to improve their creditworthiness and make their loan application more attractive to lenders. Whether one wants to apply for a home loan to build their dream home or needs an education loan to finance their child’s higher studies, having a high credit score would be crucial.