Each time you apply for credit of some sort, whether it be a bank loan, credit card or Hire Purchase, the lender will carry out a search with a reference agency to help establish whether or not you are creditworthy -  whether you are a good or bad risk.

There are three credit reference agencies in the UK - Experian, Equifax and Callcredit -  and they all hold financial information about you in what is known as your credit file.

Credit agencies do not take decisions as to whether whether lenders should accept your business, they simply provide the information on which decisions are based.

The contents of your credit file is probably the most important factor in determining whether or not your application for credit will be successful. 

Information listed on your credit file includes:

1.  Details obtained from the electoral roll such as your address which helps a lender verify your identity, proving that you exist and that you live where you say you live.

2. Details of any County Court Judgements and bankruptcies.

3. Details of your current credit commitments such as mortgages, loans and credit cards and your payment history. If you have missed payments on a credit agreement it will be listed in your credit file. Banks and building societies pass this information to credit reference agencies on a regular basis.

4. Details of previous credit searches. Every time a search is carried out it leaves a 'footprint' on your file and that information is available to every other lender.

Most lenders aren't too concerned about the odd missed payment especially if you caught up afterwards. It's the Default notices and County Court Judgements which are most likely to be of concern and as these stay on your files for six years, even if you eventually manage to pay them off, it can still affect your chances of getting credit in the future. You'll either be rejected outright or you'll be charged a higher interest rate.

If your credit file lists a series of late payments, defaults or County Court Judgements, then there's not much you can do to improve matters except to make sure that your payments are on time in the future.

However, if you've missed a few payments for reasons that you think should be taken into account such as illness or redundancy, you're allowed to write a short explanation for your file so that it shows up when lenders run a credit search on you.

You should also contact the appropriate agency immediately if you discover inaccurate information on your file, as details these details will need to be amended or deleted.