Your credit score is vital. Not as important as the blood running through your veins but not far off. It's something we need to look after. Yet, for all that, our credit score is a number shrouded in mystery. What is it? How is it calculated? Why is it so important?

Firstly, what is a credit score?

Basically put, it's a figure within your credit report which is used by potential lenders, retailers, or service providers to assess your suitability for credit. If a business is loaning you money they want to be sure you are able to pay it back. They will use your credit score to establish your ability to repay the money they lend you and to reduce the risk of them being out of pocket by you defaulting on the repayments.

How is it calculated?

It's not straight forward. There is no reward table you can consult when looking to work out your credit score. It isn't like 'make a loan repayment and get 10 points' or 'miss a car payment and lose 5 points' and so on.

Neither is a credit score permanent. It is constantly changing. The figure you're given is created by a mathematical equation based on your factors including your payment history, county court judgements, bankruptcy record, public records including the electoral roll, years at your current address and number of credit searches on your file.

And your credit score can be unforgiving. It doesn't make allowances for changes in circumstances. By that we mean the kind of periods many of us endure when things go pear-shaped despite our best endeavours and we slip into temporary financial difficulties.

Why is your credit score so important?

Although most of us would prefer to live our lives without taking out credit the reality is, unless you are incredibly cash rich or live in a cave, you are going to have to apply for credit at some point.

That may be a loan, mortgage, or credit card. When you do apply for credit the lender will use your credit report - the foundation of which is your credit score, to determine whether you are a good risk. The assumption being the higher your score the lower the risk to the lender. Without an adequate score you will not be accepted for credit.

Keep the score racking up

The easiest way to increase your credit score is to ensure any repayments are made on time and you are registered to vote. Your score will improve as loan, car, or mortgage payments are made.

CreditLadder can help you improve your credit score

If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.

CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.

Remember the information provided in this article is for information purposes only and should not be considered as advice.