Chill for borrowers as the trail goes cold

Keep an eye on your credit reference, writes Sam Dunn, or mistakes by others may leave you frozen out for new loans

Have you read the story of your finances this weekend? All borrowers have one, in the form of a credit report that clocks all your loans, mortgage payments and plastic transactions. It is monitored by the three UK credit reference agencies - Equifax, Experian and Callcredit - and also makes a log every time lenders rake over your file.

According to Experian, the biggest of the agencies, consumers using its online service now look up their credit report at least once a month.

With an average of five credit arrangements each, our fears of identity theft and concern over debt repayments and rising interest rates have contributed to the rising take-up of the service, although at £50 for a year's unlimited access to your credit file, it doesn't come cheap.

Many people may not feel the need to keep such a close eye on their financial footprints. After all, if they don't regularly miss loan repayments or take on more credit card debt than they can handle, then why should they worry?

However, a healthy report is essential for credit card or mortgage applications and you need to keep tabs on it in case your story gets distorted through circumstances beyond your control. And such problems may not be the result of fraud; they could be down to bureaucratic bungles.

Independent on Sunday reader Nigel Knox found this out after trying to help his girlfriend clear big debts to Barclays bank and the credit card company Goldfish. The lenders had sold these balances on to separate debt collectors - a common practice in the financial services industry when outstanding repayments become an expensive problem.

In this case, Mr Knox paid off his girlfriend's loans but no record of this found its way to the credit reference agencies, thanks to a failure of debt settlement protocol between the big lenders, their debt collectors and the agencies.

As a result, when he tried to arrange a remortgage with his girlfriend, Mr Knox discovered that the wrongly blemished credit reports were convincing lenders to turn them away.

The communication breakdown has left the couple unable to get a new mortgage for well over a year. "It seems like we fell right through a hole in the system," says Mr Knox.

Had he known, he could have written to the reference agencies to request a "note of correction" be posted on both his and his partner's credit report.

You can write up to 200 words to explain your unhappiness at a particular credit status and this alert will be read by every lender, providing a more accurate snapshot.

Credit agencies will normally look into any problem but, failures by lenders aside, the way the service works has some way to go. In particular, consumer awareness needs to be improved and Equifax and Experian are flagging the benefits of writing in - for free - to place correction notes.

There are other flaws. For example, lenders won't always give a full picture of their own customers' finances. Depending on the type of account you hold, some of the UK's biggest banks only release limited data.

Late payments or multiple applications for credit cards by LloydsTSB current account customers may go unnoticed by other lenders during a credit check, simply because its policy is only to reveal a "default" history - where repayments have fallen seriously behind.

"There can be gaps," says James Jones of Experian, "but pressure is now on the industry to share full information."

Write to the reference agencies if you feel you are being unfairly turned down for credit or you have a query. For a fee, you can even see what credit score they give you. You can also check your credit report by post: the statutory fee is £2.

Don't forget, you're stuck with a bad record for a long time. Experian's database notes late payments for at least three years and court judgments blot your score for six years.

Write to: Equifax, Credit File Advice Centre, PO Box 1140, Bradford BD1 5US; Experian, Consumer Help Service, PO Box 8000, Nottingham NG80 7WF.