Glossary of

Credit Terms

Arrears

Contracted mortgage payment not made by the due date. Applicants who have arrears on a current mortgage may experience problems if attempting to arrange a new mortgage through the mainstream lenders. A number of lenders do, however, specialize in this area of the market.

Bankruptcy

A legal declaration made by someone (either voluntary or not) that he or she is legally insolvent.

Budget

An itemized list of money a person (or company) will take in, and how much will be paid out (expenses), over a specified period of time (usually monthly

Consumer Credit Act

The CCA is there to protect individuals and to ensure that the Finance Houses comply with set rules.

Cosigner

Another person who signs your loan and assumes equal responsibility for it

County Court Judgement (CCJ)

A judgment for debt recorded at a County Court. These judgments will be shown when the lender carries out a credit search. If the debt has been repaid, subsequent to the judgment being recorded, then the entry will be marked 'satisfied'. The appearance of CCJ's on the credit register will greatly reduce mortgage options and nearly all lenders will insist there are no. This is commonly refer to using just the word “judgment”

Credit

A means of borrowing money from a person or a company and returning it at a later date, usually with interest charged.

Credit Counselors

Qualified people who provide a service and are able to offer advice on how to manage outstanding debts and to answer other credit questions

Credit History

A partial profile of your financial life within a given period of time (usually measured in years). It shows the extent to which you pay your bills on time and how much you owe particular companies.

Credit Limit

The credit limit is the maximum limit on the amount of money that you may borrow on your credit card account. The issuer decides on the limit for each customer based on the information given on the application form. The credit limit may be changed over time. Some issuers change the limits automatically by watching the way you spend and repay. Other issuers only offer to raise the credit limit when the customer asks them to.

Credit Reference Agency (Credit Bureau)

Issuers use credit reference agencies to check your identity and the credit history when you apply for a credit card. The information provided includes whether you are a voter at the address you have given (which means you'll be on the electoral register), whether you have failed to repay your debts or whether you have been taken to court for not paying back a debt. Everyone is allowed to see his or her own records.

Credit Report

A document that list your credit history created and updated using information from Banks, Retailers and other sources, i.e. Courts.

Credit Scoring

Credit scoring is an unbiased way of deciding who should receive credit. By giving points based on the information supplied on the application form, the lender decides whether to give you credit. Your age, how much money you earn, how much money you owe and other factors are taken into account. Credit is given only to those applications which score a certain amount of points. This is decided by the issuer and varies from lender to lender

Creditworthiness

Past, present and future ability to repay debts

Debit Card

Debit cards are basically plastic checks. When you pay by debit card the money is taken directly from your bank account within a day or two of the transaction. There is no credit involved since your account is debited the same day you make a purchase. Details of purchases are shown on normal bank statements.

Debt Consolidation

Sometimes referred to as loan consolidation, this simply represents the policy of borrowing on mortgage in order to repay other loans or debts. This can be achieved as part of a re-mortgage or by arranging a further advance from the existing lender

Defaults

Simply a record placed by a bank or other financial institution when you take out a loan / credit card agreement which you have not paid stating you have not maintained your payments. Then they have registered that you have been issued with a Default Notice which you have set period to comply with

Existing Liabilities

This term is used by lenders to define all other finance commitments apart from the existing mortgage. This will take into account such items as bank loans, HP, credit cards, maintenance payments (to ex-spouse) etc. Most lenders will take these items into account when assessing how much they are prepared to lend and will usually deduct 12 months payments from gross annual income before applying their normal income multipliers

Extended Credit

All credit cards offer extended credit, sometimes called revolving credit. This means you can spend as you wish provided you stay within the credit limit agreed with their issuer and pay back as much as you want provided you pay the minimum. If you stay within your credit limit, you don't have to consult the issuer each time you want to borrow more money.

Interest

Interest is the amount you are charged for borrowing money. Interest on credit cards is charged for the length of time the money is borrowed, unless you repay the amount borrowed promptly after the monthly statement arrives.

Merchant

Any business, however small, which takes a credit card is called an outlet or merchant. It may be one shop, a chain store, a garage, a dentist, a hairdresser, a cinema and so on. There are half a million outlets in the UK which accept payments for purchases by credit and debit card.

Minimum monthly payments

Most cards have a minimum requirement for how much you need to pay each month towards an outstanding balance. This is expressed either as a percentage of the balance or as a fixed amount.

Outstanding

When you borrow money with a credit card the amount you have yet to pay back is called the amount outstanding

Summons

Issued by the plaintiff who intends to sue the defendant for money or property.

Unsecured loan

Most personal loans are so-called unsecured loans. This means that the lender does not have a particular asset, such as your home, to reclaim if you should stop payments on the loan before it was paid back. However, the lender may still have a rightful claim on any of your possessions up to the loan amount should you not be able to repay the loan.