There's no such thing as a credit rating...

When you apply for a credit card or current account or to borrow money, the lender will usually credit score your application. This helps the lender decide whether to accept your application and, where relevant, helps set your credit limit and interest rate. . To do this they rely on three pieces of information:

Details off your application form;
Any past dealings they've had with you;
Data from one of the three Credit Reference Agencies - these contain electoral roll details, court records and information on millions of transactions provided by lenders.

Credit scoring works by awarding points to the information you provide on your application form and to the information recorded on your credit report (held by a credit reference agency). Lenders often use all this information to try to predict how big a risk they are taking by allowing you to borrow money and whether you can afford to repay it. It helps them decide:

whether to give you a credit card or loan;
what credit limit to give you; and
what interest rate to charge.

If you don't score enough points to reach the lender’s pass mark, the lender may:

turn down your application;
offer to lend you a smaller amount than you were hoping for; or
charge you a higher rate of interest.

The aim of the credit scoring system is to 'predict your behaviour' and see if you're likely to be a profitable customer. Obviously a bad risk isn't profitable, but then again nor is someone who plays the system. Remember, the idea is for the lender to make money from you, so if you have a history of paying loans off before they finish, it actually makes you LESS attractive to them, as they won't collect all of the interest (i.e. profit) that they could from you.

Each lender has their own scoring system, but you’ll generally score more points the longer you’ve been in a job; if you own your own home and/or have lived for a while at the same address; if you’re middle aged rather than younger or older; and if you’re married. However, you certainly don’t have to be all of these things to apply for a loan.

The information on your credit report is very important and having a good credit history will improve your chances of getting credit. Someone who has had a credit card and pays all their regular bills on time may score more points than someone who’s new to borrowing. On the other hand, it can count against you if you already have several loans and credit cards, or if you’ve made lots of different applications recently. So be careful not to apply for credit until you have decided on the best deal.

If you’re not on the Electoral Roll the lender might refuse your application. This is because lenders use it to confirm your name and address.

What if they turn you down?

Lenders won’t go into detail about how their scoring systems work, but if you are refused credit you can ask them to tell you the main reason – which could be because of credit scoring or because of information on your credit report. They have to tell you the name of any credit reference agencies they used.

Check and improve your credit score!

You have a right to see the data that is kept on your file at the credit reference agency for just £2. Yet these days, often go to their websites and they'll try and charge you much more for unnecessary souped-up variants.

Once you get it, check that all the details - your debts, repayment history, addresses - are all correct, and if not you should immediately request that the file is amended.

Yet it doesn't stop there, there are lots of ways to improve the way they look to prospective lenders, from the obvious - making repayments, spacing out your applications - to the slightly more obscure - getting on the electoral roll, cancelling unused credit, and getting a landline number.