- Check your credit report
- Tackle your debts
- How to ease the credit squeeze
- How the credit crunch affects you and what can you do to ease the pain
- Don't let credit crunch your relationship

Everybody knows that the economy’s not in great shape at the moment - the pound is down, growth has turned negative and savings have been hit by lower interest rates.

But every cloud has a silver lining. House prices are falling, which means they are more affordable – if you can get a mortgage. There are bargains to be had in the shops and most of us are looking forward to Christmas. But it pays to be cautious in the current economic climate. You might need- or want - to borrow over the next few months and to get the best deals, you need the best possible credit rating.

Credit scores explained…

First, you need to understand how a credit rating – also known as a credit score – is calculated. Lenders take information from your application form, such as the amount you earn and how many dependents you have, and details from your credit report. This is the personal history of what you’ve borrowed and how you are managing the repayments, as well as any court judgments or insolvency proceedings in your name and other data.

Each item of information is allocated a value and the total is your credit score. Every lender uses a slightly different formula and some even use different weightings for different products, so every credit score is unique. The final result is designed to assess whether you’ll be able to repay what you borrow, comfortably, on time and in full.

“If you’re concerned about protecting your credit rating, you need to understand and keep tabs on your credit report,” says Jim Hodgkins, managing director of Experian’s online credit monitoring service, CreditExpert.

“A single clerical error could make the difference between clocking up the credit score that will get your application approved and being turned down, so you should check your credit report regularly to ensure that it’s up to date and accurately reflects your circumstances.”

And what can affect them…

Here are some of the less obvious ways that the downturn could influence your creditworthiness – and tips on how to deal with them.

Problem – The rising cost of everything, from groceries to heating your home, is getting on top of you, so you decide to give yourself a break by skipping a monthly payment or two.

Consequence – It may be tempting to hold back a repayment on a loan or credit card but it will be recorded on your credit report for at least three years. That means the evidence will be there for lenders to see every time you apply for a new mortgage, credit card or loan. It’s always better to talk to your lenders about any difficulties than to take matters into your own hands.

Problem - The base rate is coming down but you haven’t yet seen the benefits.

Consequence – There isn’t a lot you can do if your mortgage or loan is affected but if you are one of the many credit cardholders who only makes the minimum payment each month, you can stop yourself sliding deeper into debt by paying off as much of your balance as you can afford. If you have more than one card, you could pay off the one with the highest interest rate first. It may even be worth checking out whether you would be better off consolidating your debts with a lower interest loan.

Problem – Unemployment is rising and nobody really knows how long the recession is going to last.

Consequence – If you become an unemployment statistic, it’s bound to have major financial repercussions, so take advantage of any help and advice that is offered by your company. The loss of income will also have an impact on your credit rating, especially if you have a family to support. Take the time now to look at your credit report, making sure it is accurate and up to date and all your accounts are in order.

Problem – ID fraudsters are targeting existing bank and card accounts – online fraud leapt 185 per cent this year.

Consequence – Confusion about bank take-overs and mergers has left many people vulnerable to phishing attacks – e-mails that pretend to come from a bank, building society or card company and ask for private information, such as account details and passwords. No reputable organisation would do this, so never respond to these messages and delete the e-mail immediately. Watch out for missing post – if your statements fail to arrive, they could have been intercepted by a criminal. Either way, your bank accounts could be cleared, your credit card maxed out and your credit rating trashed before you realise what’s happening – and you’ll be left without money while you sort things out. Regular checks on your credit report allow you to see your card balance, so you can stop problems before they escalate.

Problem – Your lifestyle has become prohibitively expensive, so you’ve started applying for lots of new loans and credit cards.

Consequence – Taking out more credit is fine if you’re sure you can pay it back but if you overstretch yourself it will come back to haunt you. Prospective employers and landlords can ask your permission to see some parts of your credit report. Lenders also check it when you apply to them. They want to reassure themselves that you are not overburdening yourself before making you any new offers. Bear in mind, too, that making multiple applications will leave records, known as footprints, on your credit report, which could make lenders think you are desperate for money or even that a fraud is being committed. Checking your report yourself does not affect your credit score.

Problem – You're slipping into arrears with your mortgage and can’t sell your home because of the slump.

Consequence – Like bankruptcy, a repossession will stay on your credit report for six years. If you are having difficulties making your repayments, talk to your lender straight away. You may be able to work out a way to ease the pain, temporarily at least, such as a mortgage holiday for a few months or an extension to the loan. There are also specialist organisations that can give you free and impartial advice. Try Citizens Advice – you’ll find a local office in the phone book or at www.citizensadvice.org.uk – or the Consumer Credit Counselling Service (CCCS) at www.cccs.co.uk. National Debtline is another useful resource – www.nationaldebtline.co.uk.

• See your Experian credit report for free.