With all the financial jargon and confusing terms surrounding borrowing, credit reports can seem tricky to understand. People take out loans for a variety of different reasons, and everyone will tell you something different when it comes to how to best improve your credit rating, based on their personal experiences.

To make understanding credit reports a little easier, we’ve put together a guide to separate the facts from the fiction.

FACT: A credit report holds information about you and your credit history

Despite many people thinking a missed payment here and there won’t affect their credit report, every financial decision you make will be held on your file. From your date of birth and employment information, to previous purchases and loan applications, your credit report is there to help lenders decide just how creditworthy you are. Public records, such as bankruptcy, will also show up on your credit report. Although it’s rare, it’s worth noting that your credit report may have some mistakes, so it’s worth checking it before applying for a loan.

FACT: A credit score is not the same as a credit report

Although they may sound similar, a credit score is different to a credit report. Your credit report is a list of your financial history and personal information, whereas your credit score gives you an overall grade of creditworthiness based on this information. The higher your credit score, the more likely you’ll be accepted for a loan or other forms of credit, such as a credit card, store card or loan.

FICTION: The more money you make, the better your credit rating

A common misconception is that the wealthier you are, the better your credit score, but sometimes this isn’t necessarily the case.  It’s not how much you earn that matters when it comes to a credit score or credit rating, it’s how you spend it that counts. Lenders will take your income into consideration, as the more you earn the less risk you are to them. If you do earn a low income, there are ways to increase your chances of being accepted for a loan, such as paying off any current debts or lowering outgoings

FICTION: Having more than one credit card will lower your credit rating

Having more than one credit card won’t necessarily lower your credit rating, unless you’re using them incorrectly. Lenders like to see long-term, positive relationships on your credit report, so having credit cards for a number of years can show lenders that others trust you. Opening several credit cards at once isn’t advised, but if you have a number of credit cards and you’re using them responsibly, this may work in your favour.

FICTION: You can never recover from a bad credit report

Although a bad credit report might be disheartening at the time, don’t panic, as there are plenty of things you can do to improve it. First, you should check to see if there are any mistakes on your report, as mistakes can result in credit and loan rejections. Be sure to pay your bills on time and register on the electoral role to increase your chances of being accepted for credit. Another factor that could be influencing your credit rating is if you’re financially linked to another person with a low credit score, so be sure to financially separate yourself from this person before any future loan applications. Although all these tips will help you to improve your credit rating, negative marks, such as late repayments and bankruptcies, will take a little longer, but they will be removed from your report after roughly seven years.

If you want to check your credit rating, then there are many free online credit reporting agencies where you can do this, such as Equifax and Experian.

Find out more or apply for an Asda Personal Loan here. For more financial hints and tips read our other Asda Money Personal Loans guides.