'Tis the season to be almost bankrupt

Neil Baker reports on ways to restore a good credit rating

Spare a thought this festive season for less fortunate people who will not be able to enjoy the traditional activities of credit-fuelled generosity, binge spending and conspicuous consumption - the people with bad credit ratings.

Doing a "proper" Christmas is now such an expensive business that for many people the most important ingredient is not goodwill, smiling children or snow - it's plastic.

A bad credit rating can be a real sickener, but the start of a new year is a good time to sort out any debts and get the slate wiped clean.

When you make any application for credit, the lender will usually do a score check. Information on the application form, such as how much money you earn or how long you have been in your job, is used to work out how easy it will be for you to repay the money. You could pass this test with flying colours, but most lenders will also ask a credit reference agency to check your application.

Even if your financial position makes you a good credit risk, reference agencies hold information going back several years. If you have had a bad experience with credit in the past, the lender may decide not to make any credit available.

Credit reference agencies must let you see your file if you ask. Some of the information is culled from public sources. But reference agencies also hold information which many people would regard as confidential. Whenever you take out a loan or other credit, the agreement you sign will state that the lender has the right to inform a reference agency if you default on the agreement.

Default does not just mean that you didn't pay off the money owed. One of the big two UK agencies, CCN, can know whether you have had an unauthorised overdraft or whether any cheques or direct debits have bounced. It will know whether you have been late with any loan repayments and, if so, how late and how often.

CCN keeps information about country court judgements (CCJs) and bankruptcy on your file for six years. Information on loans or accounts is held for six years if they are active and three years if they are closed.

It is possible to have your slate wiped clean. "Credit repair" agencies offer to have CCJs removed from your credit file for a fee. But beware - last year the Consumer Association reported concerns that some of them acted illegally.

More than 1 million CCJs are registered each year for non-payment of debts and, according to the Consumers Association, there are three genuine reasons for having a CCJ set aside: it was registered in error; your defence, which should have been heard at the time, was not considered; or the amount was paid in full within a month. If you feel that any of those applies in your case, you should contact the court which gave the judgement. Default notices on your credit file can be removed if you apply to the lender which put the notice there - they can tell the credit reference agency to remove the information. They might be prepared to do this if payments have been brought up to date, if you have come to an arrangement to pay, or if you are in dispute over the credit agreement.

For a copy of a "No Credit?" leaflet call the OFT on 0181-957 5058. If you have problems with debts, there is an OFT leaflet called "Debt". The National Debtline phone number is 0121-359 8501 and the Consumer Counselling Service is on 0345 697301.