A credit rating affects many things we do – buying a house or car, applying for a loan or a credit card. Unfortunately, many people don’t understand how their credit rating is determined - and many people don’t bother to check it regularly for accuracy.

If you are applying for any kind of loan, you will most likely have to give your permission to have your credit checked. Your credit history is compiled from many different sources including county court judgments and the electoral roll as well as any past or present debts, or any bankruptcy proceedings.

Most High Street banks or building societies base their decision on whether or not to lend money on profiles supplied by the UK’s two leading credit reporting agencies – Equifax and Experian. The information in the report is then passed on to the lender who ultimately makes the decision as to whether to extend credit.

A bad credit rating can be caused by several different things. Obviously, if you have outstanding debts or a history of late payments, this can seriously affect your rating. Any County Court judgments or bankruptcy proceedings can also be a huge obstacle to getting credit.

Lenders also look at stability – someone with no steady record of employment or somebody who rents their home rather than owns, has less chance of being given credit. And some lenders also take into account the area of the country you live in – some postcodes are considered “safer” than others when it comes to lending money. Older people and those with skilled occupations also find it easier to get credit.

If you do have bad credit, there are some steps you can take to solve the problem. Firstly, obtain a copy of your credit report and check it for accuracy. Remember, by law you have the right to see your report as well as see who has been checking it recently. A credit report that has been checked many times by potential lenders – even those who didn’t lend money to you - will also tend to increase your chances of being turned down.

When checking your credit report, start with the obvious - always check that your address is current, and that there are no “gaps” in your address history which might suggest no fixed abode. If you have previously had court judgments against you, make sure they are paid and the County Court has issued you what is known as a certificate of satisfaction – this will indicate that you have paid off the debt.

If you have damaging applications on your credit report that were jointly in another persons name, you may ask the credit agency to remove that entry if you no longer have an association with that person.

Whether we like it or not, creditworthiness is a big part of our lives - understanding how credit ratings work is a big step towards fixing the problem of bad credit.