Answer: To answer this we first have to understand exactly what your credit rating is, what it consists of, and why it matters.
Your credit rating is like a financial fingerprint, a record of your past record of making payments, and whether you've been able to fulfil financial obligations.
It's also influenced by other factors, such as whether you are on the electoral roll, whether you're linked to properties or people who are in debt, and whether you've recently applied for credit.
There are a number of things you can do to improve your credit rating (see below), but one of the most basic is simply to show that you can make repayments.
This can be as simple as having a mobile phone contract and keeping up your regular payments. Any other regular repayments such as utilities bills will demonstrate you can keep up payments, and will improve your credit file.
A credit card can also help in this regard: if you make modest charges on a credit card and repay the balance in full every month it will improve your credit file over time.
However there are two problems with this approach. If you have a poor credit file or you’re looking to build your credit rating, it may be difficult to get your hands on a credit card in the first place, in which case you may need to consider credit cards designed specifically for those with limited or poor credit histories.
Secondly if you do get a credit card don't overspend on it and always clear your balance. If you fall behind on repayments it won't help your credit file and it could lead to debt as interest payments mount.
Other ways to improve your credit file include:
Get a copy of your credit file. You can get a statutory £2 credit report (or a free 30-day trial) from each of the three main agencies (Experian, Callcredit and Equifax) which you should check for accuracy.
Make sure you're on the electoral roll in your area.
Make sure your credit file doesn't have any incorrect information about CCJs (County Court Judgments) or bankruptcies.
Be aware of any mistakes on your file that could indicate fraud.