At the credit crossroads

With less than 100 days left until Christmas, it might not be too long before a new credit card or personal loan starts to look like the ideal present to give yourself.

But what if you succumb to the lure of new plastic and then, horror of horrors, have your application refused? Remember, an amazing one in every two applicants for a Barclaycard is rejected - so even if you reckon you're a low-risk borrower, you may find that your prospective lender thinks otherwise.

Everyone who applies for credit from a bank, credit card company or other lender is screened for credit worthiness, normally through a process called "credit scoring", along with checks against records held by a credit reference agency.

Every lender's approach to credit scoring is different, with point allocations varying according to which particular product you're applying for. It's unlikely the lender's decision about whether to approve your borrowing will be based on your credit score alone, but scoring higher than the "pass mark" will, in general, help you get credit.

The golden rules for successful credit seeking are to own your home, be married, have a permanent, full-time job, hold a savings account, and not move around too much.

But these factors are not enough to guarantee credit, especially as credit scoring can be as much about marketing as screening out defaulters - some people who might generally be considered safe risks might simply not fit in with particular lenders' policies.

Credit card firms might reward you for being under 40, for example, because, in their experience, that means you're more likely to keep your balance high and therefore pay lots of interest.

Information thrown up by your credit reference file, held at one of the UK's two credit reference agencies, Experian and Equifax, can also have an effect on your application.

Contrary to popular belief, these bodies do not operate credit blacklists. They themselves make no lending decisions, but simply hold financial information about almost every adult in the country, to share between lenders.

Your credit reference file includes names and addresses as they appear on the electoral roll. This helps lenders confirm your identity and check the address you've given for yourself is correct.

The file also includes information about any county court judgements and bankruptcy orders made against you within the last six years, along with details of all credit accounts you've had over the same period - both those where you've kept up with payments and any that have fallen into arrears.

If you've had a property repossessed, this will be highlighted in searches by lenders who are members of the Council of Mortgage Lenders (CML). Members of a scheme called the Credit Industry Fraud Avoidance System will receive notification if your name has been linked with a fraud or attempted fraud - if someone has used your name in an attempt to apply for credit, for example.

Your file also records "footprints" of previous searches by lenders within the last 12 months, and lenders can share details via your file if you've moved home without providing a forwarding address.

If there are any "associations" between you and another borrower - in other words, if you've made a joint application for credit facilities or have had a joint account - information for the other person will also be retrieved.

The same is true if you've changed your surname at any point. And if there's anyone with the same surname who lives at the same address as you, your files will be linked.

So what should you do if, after all this behind-the-scenes analysis, your application for credit is rejected?

First, try to find out why. Lenders do not have to tell you exactly why they've turned you down, but they should give you an indication of the reason. For example, it could be that you failed to reach their pass mark, or you were rejected because of negative information provided by a credit reference agency.

You have the right at any time to see a copy of your credit reference file. If the information on it is incorrect, or if it contains information about people with whom you have no financial connection, you can ask for the file to be amended.

And even if the agency refuses or fails to make changes because it feels the file is factually accurate, you can - subject to the agreement of the information commissioner's office - add a "notice of correction", which will allow potential lenders to see your side of the story.

Details on how to get hold of your credit reference file are available at Experien and Equifax. No credit, a leaflet explaining your rights as a credit seeker, is available from the information commissioner on 0870 44 21 211 or via Data Protection.