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If you're turned down for credit, a loan or mortgage, don't panic - you aren't on a credit blacklist. But you do need to learn how lenders decide whether to make you an offer, so you'll have a better chance of success in the future.

It has never seemed easier to borrow money. Shops offer special deals, direct mail floods through your letterbox and the television and newspapers are full of advertisements offering loans, mortgages and credit cards. So if you get turned down, the obvious question is "Why?" swiftly followed by the nasty suspicion, "Maybe I'm on a credit blacklist."

The good news is that you're not. In fact, there's no such thing as a credit blacklist.

What you need to understand is the kind of information that lenders consider when they decide whether or not to offer you credit, the processes they follow and what you can do to improve your chances of being accepted.

Your personal financial history

At the heart of this process is a mass of information about your financial history that is collated and held by credit reference agencies - your credit report. This is a purely factual record that includes data such as the number of loans, mortgages and credit cards you have, whether you have made your repayments on time, whether you have any court judgments and so on. Much of this information is supplied by lenders.

Your credit report also shows whether you are on the electoral roll at the address you have given. Lenders use this to check that you live where you say you do. There will also be a record of the name of anyone you are financially connected with.

The credit reference agencies - the largest in the UK is Experian - do not add any comments or make judgement. They simply collate information from sources such as lenders and public records, compile it in an accessible and easily understood form and hold it securely.

Making decisions

It is up to individual lenders to decide whether or not you fit their criteria for credit. For example, some organisations might only offer credit cards to people who have fewer than three already. Or a mortgage lender might specialise in first-time buyers.

Lenders use a combination of your credit report and the information on your application form - such as your age, occupation, salary, whether you are a home owner - plus any past experience they have of your payment behaviour (if you're an existing customer) to decide whether or not to grant you credit.

Most of them calculate a credit score - a number that they use to estimate the likelihood that you will repay what you owe and make your repayments on time.

Every organisation uses a slightly different formula to work out your credit score, which can even vary depending on the type of finance you want. Every loan application you make can therefore generate a different credit score. Your credit score will also change as your circumstances and the information in your credit report change.

In general, a higher score means you will find it easier to get the money you need. A poor score can result in a rejection or adversely affect the terms. For example, it can mean that you pay a higher rate of interest.

Other factors

Although you are not on a credit blacklist, because one doesn’t exist, lenders may consider you to be a non-standard credit risk, which will make it more difficult or more expensive for you to obtain a loan or credit card.

According to Datamonitor, the independent market analyst, more than one in five adults in the UK are deemed non-standard. They may include the self-employed, others who cannot provide sufficient proof of income and people who have an outstanding County Court judgment against them or have had their homes repossessed for non-payment of mortgage.

Credit companies also look for stability - for example, living at the same address for at least three years or having a long-term relationship with the same bank. So, if you move around a lot or switch banks often, this may tell against you.

Lenders do not have to tell you exactly why you have been refused credit but they should give you the principle reason and indicate whether it relates to the information in your credit report or their lending policy.

Understand your credit score

Before you apply for credit, it's a good idea to obtain a copy of your credit report to check that it is accurate and up to date.

The easy way to do this is to sign up for a free 30-day trial of CreditExpert, an online credit monitoring service from Experian. This lets you check your credit report at any time and means you will be alerted by a weekly email or text message when a significant change is registered - for example, if a lender searches your report when you apply for a loan.

When you join CreditExpert, you can also order your National Credit Score from Experian for the special price of £4.99. This is compiled using only the information in your credit report, so it won't be identical to the scores generated by lenders - because they also have the details you give on your application form but it will give you a good idea of how a lender may interpret that credit report information when they consider your application for credit.

It’s worth ordering your score before you make a new loan application, so you can see how helpful your credit report is likely to be.

Set the record straight

If anything in your credit report is missing or not up to date, ask Experian to investigate and amend the record accordingly - use the Query Your Report tab on the CreditExpert Web site. Experian will also tell other credit reference agencies.

For example, if you are registered to vote and it is not shown, check with your local authority and then ask Experian to add the registration to your report. And if you haven't registered, do it immediately. You can log on to www.aboutmyvote.co.uk to register.

If you have paid a County Court judgment and this is not reflected in the report, you should contact the court for a certificate of satisfaction. All credit reference agencies will be notified of the change within four weeks. Similarly, if you have had a bankruptcy order discharged or annulled, you should send a copy of the order to all credit reference agencies and ask for your report to be updated.

If there are special circumstances surrounding a particular entry, talk to Experian. For example, you may have been ill and missed a few payments on a loan, although this has never happened before or since. Experian will help you to add a short explanation - a notice - to your report, so lenders can see that you are unlikely to default again.

Doing better next time

You may need to improve your credit history if you are going to be able to raise the credit you need on acceptable terms. There is no quick fix to a poor credit record, but you should begin by trying to pay off overdue debts and then ensure that you pay your current and future bills on time. The CreditExpert Web site is full of suggestions and advice that can help you to turn your credit report round.

If you take these steps and check regularly to ensure that your credit report reflects the good habits you have learned, your chances of successfully applying for credit will be greatly improved - and you can put to rest once and for all the myth of the credit blacklist.

Get a free 30-day trial and a free copy of your Experian credit report.