Credit score is a statistical number that evaluates a borrower's credit-worthiness and is determined by his or her credit history. This score is an important factor that banks take into consideration while deciding upon the sanction of a loan(read more here).

Banks are more likely to grant a loan to an applicant with a good credit score (of 750 and above). Maintaining an advantageous credit score is a constant process. One needs to keep various things in mind while managing his finances. Some of these are-

Do not miss the due dates

Failure or delay in making even a single payment (credit card payment or EMI) will adversely affect the score as the report also shows the number of days for which the bill or the EMI remained unpaid.

Maintain a healthy credit-utilisation ratio

Credit utilization ratio is the percentage of credit availed from the given credit limit. For instance, if one's credit card limit is ₹1 lac, and he has utilized ₹40,000, his credit utilization ratio will be 40%. Alternatively, if one has three cards with limits ₹50,000, ₹1 lacs and ₹1.5 lacs respectively and the total credit used from all three cards is ₹90,000, then the credit utilization ratio will be 30% (which is ₹90,000 when calculated at 3 lac).

One should be careful in using the given credit; lenders usually prefer applicants who have a credit utilization ratio of less than 40% of the total amount.

Therefore, it can be established that the lower the credit utilization ratio, the higher one's credit-worthiness.

Don't increase the credit card limit frequently

Repeated increase in the limit can be seen as a sign of dependency on credit, and hence, can put one in a negative light in the lender's mind.

Old loans should be 'closed' and not 'settled'

As previously stated, the report accounts for all defaults, even those in an older loan. A default can lower the credit score. If a 'default' is reflected in one's credit report, he must immediately settle it so that the loan acquires a 'closed' status.

If one accepts even a partial settlement from the bank, it would mean the bank is agreeing to accept a payoff amount that is less than the original amount. The loan, then, would be 'settled' and not 'closed'. This, again, would reflect badly in the credit report.

Keep credit report error-free

One must always check all details, especially personal details like name and address when provided with his credit score report. It is important to check that all loans and payments are mentioned accurately and that no extra loans are included by error.