A few missed payments can stay on a credit report for years - check to see yours is OK

Borrowing is so much a part of 21st century life that being declined for a loan, credit card or mortgage can come as a shock, especially if your finances are well under control. Here we explain what could be counting against you - and what you can do about it.

There’s a score that can affect your life just as much as your bank balance or your tax code. It’s the credit score that lenders calculate when you apply for a loan, mortgage or credit card. It represents the risk they take in lending to you, because there’s always a risk that a customer might not repay what they borrow.

Lenders use the information you give them on your application form plus details on your credit report - the personal financial record that shows what credit you have taken out in the recent past, your repayment history, whether you have any court judgments or have been bankrupt and whether you are registered to vote.

Each item of information is allocated a value. Generally, the higher your score, the easier you will find it to borrow. So if you’re comfortably off and managing well, why would a lender turn you down?

1. You haven't borrowed enough in the past

You’d think lenders would love a customer with no debts, but it isn't as simple as that. They rely on the details in your credit report to show them that you make repayments on time and are a reliable person. If you have no track record, they cannot tell how you might behave in future and could mark you down because they have no evidence of being someone who manages credit well.

If you fear this could happen to you, ensure that the lender has full information about your situation - for example, that you own your home and have paid off your mortgage, or that you use a debit card because you live within your means. They can then make checks and come to a rational decision.

2. You don’t fit the profile for that particular lender or the type of credit

Confusingly, you don't have a single credit score. Different lenders use different ways to work out their scores, and sometimes one lender will even use different calculations for different products. They target specific groups of people and you may not fit their template.

Ideally, you should do your research before you apply and identify lenders who want to deal with people like you and what product they have for you - for example, for homeowners, students, older people and so on. The personal finance pages in newspapers, specialist magazines and websites will help.

3. There are too many recent searches on your credit report

Each time you apply for credit, you will give permission for the lender to search - look at the information on - your credit report. This search leaves a record of the check that you and other lenders can see. If you apply to multiple lenders in a short space of time, your credit report may give the impression that you are taking on more credit than you can afford. Future lenders can interpret this as meaning that you are desperate for money, overextended or even that a fraudster is using your identity to get lots of credit, fast.

Make sure that when you approach lenders for information about their products, they don't think you are making an application. Always explain that you want details, or a quote, but that you haven’t yet decided to apply.

If you think there are searches on your credit report that shouldnÂ’t be there, contact the lenders involved, explain that you were only looking for information and ask them to amend your credit report.

4. You had problems years ago

Today you’re financially fit, but perhaps things haven’t always been so good. If you have missed credit repayments in the past, a record of these arrears can stay on your credit report for up to 36 months. With a court judgment, the evidence is there for six years. Information about a bankruptcy stays on record for at least six years and a bankruptcy restrictions order can remain there for as long as 15 years. Lenders see these and mark you down when scoring your credit application, because they fear you may not honour your obligations to them if you have failed with others in the past.

Don't panic – you may be able to take remedial action. You can ask to add an explanation of the circumstances surrounding any problems that caused adverse information to be added to your credit report. For example, you might have missed a few repayments because of illness or an accident. The credit reference agency will help you add a note explaining what happened and why things are different now.

5. You aren’t registered to vote

Lenders use local electoral registers to check that you are who you say you are and live where you say you live. If they don't find your name at your address, they may need to make further checks or can even turn you down.

The solution is simple: register at once and ensure that you have been taken off the electoral roll at any previous addresses.

What next?

If you want to improve your credit rating, your first stop should be your credit report.

You can view your report as often as you like, ask for help in adding explanations and find advice and links to organisations that may be able to help you.

Once you have registered to view your Experian credit report online, you will be able to order your National Credit Score for just £4.99. This is based purely on information in your Experian credit report, so it will not be exactly the same as a credit score calculated by a lender, but it will give you a good idea of how lenders may view your credit report information when they are making a decision.