Many people underestimate the importance of their credit report, but if you are planning on applying for a loan, credit card or even a new phone contract, it could prove very useful. Credit scores can be damaged by things like debt and late or missed credit card payments. If you know what your score it, you then have the opportunity to clean it up before you start applying, otherwise you might very well be turned away.

So what is a credit report? While they are not master spies tracking your every move, banks , credit card companies and other firms do keep track of your spending habits and your methods of spending. This is then reported back to credit bureaus and from there companies who run a credit check can decide whether they want to lend you money, sign you onto that 12 month phone contract or let you pay for an item monthly over a certain period of time. Your employment history and whether you own your own home is also recorded on your credit report.

Basically, what lenders are looking for is a good track record with credit and debt: have you missed repayments in the past? Are you constantly in debt? Are you spending more than you are earning? Do you already have six credit cards with different providers? If the answers to any of these questions are yes, the chances are you probably have a pretty bad credit rating and, if you are offered credit in the future, you are likely to have a high interest rate, if lenders are willing to give you credit at all. There are other factors lenders will also take note of, for instance whether you have ever had to be chased up by a debt collection agency or how long your credit history is. Obviously, if you have declared yourself to be bankrupt in the past, this will also have bearing on your credit rating.

Credit bureaus such as Experian can provide you with a credit report. If you've been turned down for credit because of something that arose on your credit report, you are entitled to a free report. At other times, you can still obtain a copy of your credit report, although some companies may very well charge a fee, for instance in the form of a monthly subscription for other services they provide.

Once you get your credit report, it is important to check the details, especially if you think you have been turned down by a lender because of the information there. Take a look at all the credit and loans listed and double check they are yours and also that the balances or loan amounts are all current. If a loan or credit card balance you have already paid off is still listed, it is important to contact the credit bureau to rectify this as it will be affecting your credit score and could make all the difference if you want to apply for a loan or similar in the future.

As with current and past balances, it is important to report any other inaccuracies on your credit report as these will also be affecting your score. If you think that there is a mistake, let the credit company know and, if possible, try and back your statement up with documents if you have them.

Any information that goes on your credit report will stay there for seven to ten years, but if you are currently despairing over your bad credit score then don't worry as there are ways to repair your rating over time. For instance, paying your bills on time over a long period of time will help improve your credit rating, as will reducing the balance you have and, most importantly, not taking on any new debt. Even if you have had a bad credit history, lenders will take any improvement into account when deciding whether to offer you credit or not, especially if you have been taking action like paying bills on time for a year or more.