Shadow Chancellor Oliver Letwin said that the current levels of personal debt comprise a time bomb that poses a threat to as many as 15 million households.

To help consumers make informed decisions when taking out personal finance products such as credit cards, loans and insurance, a new breed of financial comparison websites has emerged. Since 1997, consumer websites like Moneynet (http://www.moneynet.co.uk/ ), Moneyfacts (www.moneyfacts.co.uk/), and Moneyextra (www.moneyextra.com/) have provided invaluable information to help choose the best financial products. However, what happens when things go wrong and payments cannot be met? The unfortunate borrower gets branded with a bad credit rating and any further loan applications may be turned down, or lenders may charge higher rates of interest if there is a higher risk in the default of a loan. To someone already in financial difficulties, increased rates will of course make a bad situation worse.

Each lender weighs the information contained in a persons credit file differently. However universal contributing factors include:

• Electoral Roll information for a persons currently registered address.
• Payment history for mortgage, credit cards, loans, hire purchase and finance agreements.
• Any County Court Judgments.
• The complete amount owed and the number of credit facilities used.
• The number of new credit facilities that have been applied for (both successful and unsuccessful applications).
• The type of credit used.
• Salary details given on the application form.

The best way of reducing the risk of being classed as a bad debtor, is to improve your credit score and to ensure that a good record does not go wrong.
For people who have been refused credit, or offered loans at atypically expensive rates, here are a few basics on how can you keep your credit file in good shape:

• Immediately register on the Electoral Roll when you move house.
• Pay all bills on time; it's recorded even if you're only a few days late.
• Keep credit card balances low.
• Pay off debt rather than moving it around.
• Only apply for new credit when you need it.
• Build up your credit history slowly, don't open lots of new accounts rapidly.
• Check your own credit file to make sure it is correct.

Source: credit reference agency MyCallcredit (http://www.mycallcredit.com)

However, should the worst happen it is always best to immediately seek qualified help from the free debt counselling services available including:

• The Citizen's Advice Bureau (http://www.citizensadvice.org.uk/index/getadvice.htm),
• Citizen's Advice Scotland (www.cas.org.uk),
• National Debtline (http://www.nationaldebtline.co.uk)
• Consumer Credit Counselling Service (http://www.cccs.co.uk).