This guide will focus on why an individual might be turned down for credit, and what to do when they're turned down.

If you apply for credit, the information in your credit report affects how much you pay for it - and whether you can borrow money at all.

What is a credit rating or a credit score?

When you apply to borrow money, a lender will score you, based on your credit history. This 'score' can also be called a credit rating.

Your credit history is all the information that credit reference agencies have about you. It indicates how you handled credit agreements over the last six years, and, importantly, whether you repaid credit on time.

It's a common misconception that everyone has just one credit rating or score. In fact, different lenders look for different things, so they could score the same person differently.

Your score will change over time as your credit history changes. It can get worse, or improve, depending on how you manage your borrowing. Read 'How to improve my credit score' for more information.

What is a credit reference agency?

Credit reference agencies are the professional bodies that collect information about people's credit agreements. Lenders need this information to make their decision about who to lend money to, and how much interest to charge them.

There are three main credit reference agencies in the UK: CallCredit, Equifax and Experian.

What can affect your credit rating?

• If you're on the Electoral Roll, your credit rating should be higher.

• If you already have a bank account with the lender, you may stand more chance of being accepted.

• If you've applied for credit too many times in the last few months, it could harm your credit rating.

• If you have any missed payments or defaults on your credit history, it will harm your credit rating for up to six years.

• If you have CCJs or insolvency (e.g. bankruptcy) on your credit history, it will affect your credit rating for six years.

• If you have moved house frequently in the last few years, it could affect your credit rating.

• If you have moved jobs frequently in the last few years, your credit score could be affected.

• If someone you are linked with financially (e.g. your partner) has a bad credit history, it could affect your own credit score.

Before you apply for credit

You might apply for credit if you want to buy a car, a house, or transfer debt. You might want to shop around. If you do, credit reference agency Equifax advises that it's best to ask the lender for a 'quotation' for the required amount.

This is because each credit application is recorded on your credit history. Too many credit applications in a short space of time can suggest financial stress, or worse, fraud - and this could harm your credit rating.

A 'quotation search', on the other hand, would still appear on your credit history, but doesn't mean you applied for credit. Even so, Equifax state on their website that more than five searches in the last six months can put off potential lenders.

Before applying for any kind of credit agreement, you need to be certain that you can afford the repayments. If you can't, and you fall into arrears, this will affect your credit score. If you fall behind with mortgage repayments, you risk losing your home.

Turned down for credit?

Credit reference agency CallCredit recommends that you apply for your credit report to see what information your lender has about you. It also says that searches you request on your own file are not classed as credit searches and are not seen by lenders.

However, Call Credit also states that 'only the lender can give you a definite reason for declining you'. So, if your credit application was turned down, ask the lender why, and then read How Can I Improve My Credit Rating? . It gives you practical steps to take to improve your chances of being offered credit.

There are credit cards available for people with bad credit, although they do charge a higher interest rate. However, as long as you repay your balance on time every month you'll never pay any interest.