Ever been refused a credit card and don’t know why? It could be one of a number of details about your financial history that are tracked and recorded by credit reference agencies to help lenders assess you for credit. Credit ratings can be affected by anything from the basics – such as your history of repaying debt – to the finer details such as whether you own a fixed-line telephone. Being refused credit can affect your future rating so it could be worth getting a breakdown of your score before you apply for a mortgage, loan or credit card.

What is my credit score based on?
Your credit rating is based on a range of information about your financial history. It takes into account how you have handled credit in the past and how much debt you have. Agencies usually hold files going back around six years, although some information – such as bankruptcy filings – can be held for longer.

Lenders generally supply credit reference agencies with details of credit cards and loans you have taken out and what repayments you have made. Agencies are also aware of any late or missed payments, county court judgments and bankruptcy filings. They will also take into account your credit limit and any instances you may have applied for credit and been refused. In addition they will look at other personal details such as whether you are on the electoral roll at your current address.

How is my actual rating calculated?
Agencies pass on to lenders the information they compile about you. Lenders then combine this with other information such as your salary and employment details. They award points for various pieces of information.

There is no definitive way to calculate someone’s credit rating and different lenders adopt different approaches depending on their attitude to risk and the type of product they are offering.

There is, however, a generic “code”, which lenders must abide by when calculating credit scores. Lenders generally compare you with customers with similar profiles to see how these customers fared in repaying their debts.

How do I get a good credit rating?
There are a number of myths about what affects a good credit rating, most of which are untrue. For a start, unless you are financially connected to someone – by having a joint bank account or investments – no-one else’s financial situation can affect your rating. So, for example, an unpaid bill in a housemate’s or previous occupant’s name cannot reflect negatively on you.

The golden rule for building a strong credit score is never to miss repayments. Even if you just pay the minimum amount due each month, proving you are reliable in paying off debt will serve you well.

The other most important factor is making sure you are registered on your local electoral roll as this will be used to verify your address.

It is true that if you have never had any debt or used credit, your credit rating may not be as strong as someone who has taken out credit and kept up repayments. This is because a blank credit report does not prove to the lender that you would be a reliable customer.

Experian, a credit checking agency, suggests a good way to build up a positive rating is to use a store card or credit card occasionally and pay back the full balance every month.

Why should I look at my credit rating?
If there is any factor on your credit history that might be an obstacle to receiving credit then it is worth knowing about as often it can be rectified. This is especially the case if you are thinking of applying for a mortgage or other sizeable loan. No lender can look at your credit history without your consent so you could resolve any issue before the lender sees your details.

Also, identity fraud is rising fast – there were 55,000 instances of it last year. Experian says the average time it takes a consumer to realise their personal details are being used fraudulently is 60 months. Checking your credit rating regularly can help detect anomalies.

How do I get my credit rating?
The main credit checking agencies are Experian and Equifax. You can log on to their websites to obtain a report, which gives details of the information lenders can obtain of your credit history. You can also get a full credit scoring, which indicates how your credit history would be rated by a typical lender.

Equifax has three different services, which range from £7.50 per month to a one-off fee of £12.50.

Experian is offering a free-30 day trial for its Credit Expert service (after this the service is £5.99 per month). Once you have signed up you will be given free access to your credit report, which costs £2 for non-members. A full report and credit scoring service costs £4.99 with Experian.

These agencies also offer services such as alerting you by text if there is any significant change to your report, to help detect fraud.

Callcredit, another credit checking agency, allows you to view your credit report online for £8.95.

What happens if my rating is bad?
A poor credit rating can hinder your chances of getting a mortgage, loan, credit card or store card. It can result in you getting lower credit limits and higher interest rates.

But credit agencies say many of the reasons behind a poor rating are reversible as long as you identify them and take action as quickly as possible. The main agencies will offer you generic advice on ways you could improve your credit rating and you can also contact them to talk through more personal information to your situation.