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GLOSSARY of CREDIT TERMS A-H

Additional Cardholder
One credit card account can sometimes have two (or more) credit cards issued on it. Every month the person who opened the account (called the main cardholder) is sent a bill. The bill lists all of the things bought by both the main cardholder and the additional cardholder(s). The main cardholder is responsible for paying the bill, whoever made the purchases. There is a limit for the account on the total amount that can be spent with the card each month. The limit applies to both the main and the additional cardholders. It is called a credit limit.

Administration Fee
This is a fee charged by some lenders, which is not refundable if the mortgage application does not proceed. The Administration fee will often form part of the valuation fee but will be retained by the lender even if the valuation has not been carried out.

Affinity card
Affinity cards are credit cards that are linked to organisation like charities, football clubs, political parties and other voluntary groups. Affinity cards are a good way of raising money for a charity or football club and are often used by supporters instead of a conventional credit card. The card issuer donates money (usually £-£10) to the organisation when you first take out an affinity card and also whenever you use the card to buy things. In every other respect, affinity cards are the same as normal credit cards.

American Express
American Express (or Amex) is one of the main international credit card payment schemes. Unlike Visa and MasterCard, the other main payment schemes, Amex also issues cards itself. It is also responsible for operating the money transmission networks which link outlets, acquirers and issuers.

Annual Fee
Some issuers charge you a fee every year to use a credit card. This helps to pay for some of the fixed costs of running a credit card account, such as sending out statements every month.

Annual Review
The interest you pay changes annually. The change is based on an average calculation of the previous year's base rate.

Annuity Mortgage - (See Repayment Mortgage)

APR
Annual Percentage Rate - This is meant to show the true cost of borrowing and adjusts the notional interest rate to take account of all the initial fees and ongoing costs to reflect the real cost of borrowing throughout the entire mortgage term. Unfortunately there is currently some disagreement over how this rate should be calculated and some distortions occur. Whilst this could be a good way to compare relative deals care should be taken to ensure that the rates being compared have been calculated on the same basis.

Arrangement Fee
This is a fee charged by some lenders in order to access particular mortgage deals. Arrangement fees particularly apply if you are looking for a fixed rate or discounted rate mortgage and these may either be payable up front, added to the loan on completion, or deducted from the loan on completion (check with the chosen lender which situation applies).

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, specialise in this area of the market.

A.S.U.
Accident, sickness and unemployment insurance (sometimes referred to as A.S.R. - accident, sickness and redundancy insurance). This is an insurance policy, which is taken out by the borrower and protects against the borrower being unable to work for the stated reasons. The policy will usually pay a percentage of the normal monthly mortgage repayment (plus insurance) if the borrower is unable to work due to accident/sickness or unemployment/redundancy. These payments will normally only be made for a limited period of time - typically 6/12 months or until the borrower returns to work. The terms of these policies and the cost vary considerably from company to company.

ATM
ATM stands for Automated Teller Machines - often called cash machines. ATMs allow you to take out money from your bank or building society account or to get cash advances with a credit card. Before you can draw money out of the machine with a credit card, debit card or ATM card, you must type in your personal identification number (PIN). This number is secret and unique to you. You must not tell anyone your PIN because it is the key to your bank account. Even bank staff do not know the number.

Balance
An amount of money you owe, such as a balance on credit card. An amount of money you own in a Building Society / Bank

Balance transfer
The transfer of other outstanding balances (for example, from other payments, cards or loans) to a new card. Transferring your balances to a single card allows you to consolidate your debt in one place with one rate. Balance Transfers often offer a lower rate than that applicable for card purchases or cash advances, that is usually valid for only a limited time.

Bankers Automated Clearing Services (BACS)
BACS is an APACS clearing company which provides an automated clearing service for payments originated by Settlement Members or those they sponsor.

Bankers Draft
In situations where a person owes money to a creditor, and the creditor is not prepared to accept a personal cheque because he thinks it might bounce, a banker's draft can provide a solution. It is simply a cheque made out to the creditor by the debtor's bank, and in the eyes of the creditor is much more secure.

Base Rate
The base rate is the minimum rate at which banks are prepared to lend money - it acts asthe benchmark for other interest rates, including personal loans and mortgages. The high street banks' base rate changes following the Bank of England's signals through its daily money market operations.

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

Budget
An itemised 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

Budget Card
Budget cards work like a credit card, except for the credit limit. You agree with the issuer to pay a set amount each month by direct debit. The credit limit is a multiple of the pre-set amount you have agreed.

Building insurance
Lenders may insist that you take out this cover. It protects you and the lender in case the building falls down or is fundamentally damaged. Most lenders will offer this as part of the mortgage, but you are not required to take it from them. However, the lender may charge an administration fee of around £25 should you decide to take it via another channel.

Buy to Let
A term used to describe the purchase of a residential property for the sole purpose of letting the property to a tenant. Whilst the majority of lenders will not provide mortgage finance for this purpose a number do specialise in this niche area of the market.

Capital and Interest Mortgage - (see Repayment Mortgage)

Capital Gains Tax (CGT)
Capital Gains Tax is a tax on gains made when you sell assets - things like shares, a holiday home or an oil painting. If you buy an asset or investment then later dispose of it for more than you paid for it, you are said to have made a capital gain. Make enough gains in one particular tax year and you will be liable for capital gains tax (CGT).
Capital Raising
Normally refers to a re-mortgage when additional fluids are taken over and above the amount required to repay the existing mortgage debt which is then used for personal finance purposes.

Capped Rate
A capped rate is a mixture between a fixed rate and a variable rate. The interest rate is guaranteed not to rise above a set level within the capped rate period but if the normal variable mortgage rate is below the capped rate then the variable rate is charged. This gives the 'best of both worlds' as the interest rate can fall but will not rise above the capped rate. However, the level at which the cap is fixed is usually higher than for a fixed rate mortgage for a comparable period of time. Sometimes 'Cap and Collar' mortgages are offered and these impose a minimum payment rate (the collar) in addition to the maximum rate (the cap). The lender will normally impose early redemption penalties if the mortgage is redeemed within the first few years (see Redemption Penalties).

Cash Advances
You can borrow cash using a credit card in two ways: first, by using a cash machine and secondly, over the counter in a bank or a building society. There is usually a charge of 1.5 per cent of the amount of the cash advance. Alternatively, some issuers charge interest as soon as the money has been advanced, regardless of whether the bill is paid in full.

Cash back (on credit cards)
A cash reward paid for using the card. Issuers pay back a percentage of the amount spent on the card either at the end of the month or at the end of the year.

Cash back (on mortgages)
This is the arrangement whereby a cash sum of money is repaid to the borrower at the start of the mortgage. The amount of the cashback will vary considerably from lender to lender with the highest amounts being paid where the borrower is willing to forego any fixed or discounted rate offers and pay the normal variable mortgage rate. Cashback deals are also available in conjunction with some fixed or discounted rates but the amount of the cashback will normally be reduced in these circumstances. If a large cashback is being considered then it could, in some circumstances, be liable to Capital Gains Tax (refer to the lender, your accountant or local tax office for clarification). The lender will normally impose early redemption penalties if the mortgage is redeemed within the first few years (see Redemption Penalties).

Capped rate mortgages
The interest rate is variable, but guaranteed not to exceed a certain level for a set time period (for example, several months or years).

CCJ - See County Court Judgment

Central Registry
All Judgments are sent here for processing prior to them being sent to the credit agencies.

Charge Card
Charge cards allow you to spend money up to your credit limit, but you must pay back the full amount each month. The most common charge cards are American Express and Diners Club.

Cheque Guarantee Card
A cheque guarantee card normally guarantees cheques up to £0. The shop is only guaranteed to be paid when the shop assistant writes the card number on the back of the cheque. The shop assistant also has to check other things like the signature. Some cards only guarantee cheques but others have several uses and can be used as debit cards and for withdrawing money from cash machines.

Chip cards - See Smart cards

Cirrus
Cirrus is a network of cash machines which are part of the MasterCard system. If you have a card with the Cirrus sign on it you can take out cash from ATMs around the world which display both the Cirrus and MasterCard signs. The cash is given out in the local currency and debited to your account in pounds. There is a charge for using Cirrus - usually 1.5-2.5 per cent of the amount taken out.

Completion
(i) The final stage in the home buying process, completion is the legal transfer of ownership of the property.
(ii) The moment that your mortgage commences.

Conditional Insurance
This refers to insurance products that some lenders will impose as a condition of their mortgage offer. This could mean that the lender insists that accident, sickness and unemployment cover is taken out or that combined buildings and contents insurance is taken. If looking for a fixed or discounted product then these conditions should especially be watched for.

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

Contents Insurance
Covers the contents of your house (for example, TV, furniture, clothes, etc.) against theft, fire or damage from flooding etc. The policy will also cover liability claims against you should someone be injured in your home.

Conveyancing
The legal process of buying and selling a property.

County Court Judgement (CCJ
A judgement for debt recorded at a County Court. These judgements will be shown when the lender carries out a credit search. If the debt has been repaid, subsequent to the judgement 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 outstanding judgements.

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

Credit card
Credit cards allow you to make immediate purchases and then decide over what period to pay. You are sent monthly statements showing what you have bought. You can either repay the full amount (usually free from any interest) or pay back only some of the amount. Normally, you must pay at least £ (or 3-5 per cent) of the overdue amount each month

Credit Counsellors
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
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.

Current account mortgage
A type of Flexible Mortgage which also includes a current account.

Debenture
A loan raised by a company, paying a fixed rate of interest and secured on the assets of the company. Debentures are fixed interest securities in return for long-term loans, they tend to be dated for redemption between ten and forty years ahead of the date of issue. They may be secured by a floating charge on the company's assets or they may be tied to specific, named assets. Debenture interest has to be paid by a company whether it makes a profit or not - if the debenture holders do not get paid they can legally force the company into liquidation to realise their claims on the company's assets.

Debit Card
Debit cards are basically plastic cheques. 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

Defendant
This normally means YOU.

Deferred payment
When you are borrowing to buy a car, some lenders recognise that the car will probably have a trade-in value at the end of the loan period. They will therefore let you repay some of the loan amount when you sell the car at the end of the loan period. That may enable you to buy a more expensive car, since your interest payments will be based on a smaller value than the full loan amount.

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

Direct Debit
An arrangement made by you with your bank for certain payments to be made to a third party on specified dates. The amount may be fixed or variable and for different time periods. The third party, the receiver of funds, is responsible for organizing the deduction from your account. However, your bank will repay you if it allows an incorrect payment to be made. Because direct debits offer a lot of discretion to the company receiving the money, they are sometimes distrusted by consumers. But companies which provide regular services to an account holder like them because they can be cost efficient. So expect your mortgage lender, telecoms company or electricity supplier to encourage you to use direct debit.

Discounted Rate
The lender agrees to give a fixed discount off the normal variable rate for a guaranteed period of time. This period may last a few months or several years. The discounted rate will move up and down with the normal variable rate but the payment rate will retain the agreed differential below the variable rate for the agreed period of time. If a discounted rate is taken the lender will normally impose early redemption penalties if the mortgage is repaid within the first few years (see Redemption Penalties).

Discounted variable rate
A reduced variable rate typically given to new customers as an incentive to take out a mortgage. The discounted rate will last for a set time period.

Early redemption facility
Allows you to pay back the loan earlier than initially agreed. This sometimes carries a redemption charge.

EFTPOS terminal
EFTPOS stands for Electronic Funds Transfer at Point Of Sale. You will find EFTPOS terminals at the till in certain shops. An EFTPOS terminal electronically prints out details of a plastic card transaction. The computer in the terminal gets authorisation for the payment amount (to make sure it's within the credit limit) and checks the card against a list of lost and stolen cards.

Electron
Electron is a Visa debit card. Anything you buy with an Electron card has to be authorised electronically which means the transaction is more secure. Since you cannot go overdrawn without permission, the issuer can give a debit card to someone opening their first bank account, such as school leavers.

Endowment Mortgage
An interest only mortgage supported by an endowment policy. During the term of the mortgage only interest on the mortgage is paid to the lender. At the same time premiums are paid into an endowment policy which is designed to mature at the end of the mortgage term. The proceeds of the endowment policy are designed to repay the mortgage debt, although with a low cost endowment policy it is not guaranteed that the proceeds will be sufficient to repay the debt. In addition to providing the investment to repay the mortgage debt the endowment policy will also include life assurance which will repay the mortgage debt in the event of the death of the policyholder within the policy term.

Exchange of Contracts (NOT SCOTLAND
This is the stage in the property transaction at which legally binding contracts are exchanged between the buyer and the seller. Once contracts are exchanged the vendor becomes legally obliged to sell and the purchaser to buy on the terms agreed.

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.

First Time Buyers (FTB or FTP)
Lenders differ in their definition of a First Time Buyer. Some lenders will include in this someone who has owned a property before but has no property to sell (i.e. may be renting temporarily after selling) and other lenders will include joint borrowers where just one party is a FTB. Other lenders will take a more literal definition and only include someone who has never owned a property before.

Fixed Rate
The lender will fix the interest rate that they charge at a set level for a fixed period of time. There are normally a whole range of fixed rate products available from different lenders and these vary in terms from very short periods (3 - 6 months) up to the whole 25 year mortgage term. The lender will normally charge early redemption penalties if the mortgage is redeemed within the fixed rate period and often beyond the initial period (See Redemption Penalties).

Flexible Loan
Flexible loans act as drawing accounts on which you may write cheques. Your bank will agree a credit limit for your flexible loan against which you may borrow and, thereafter, may have as much or as little of the money as you want whenever you want it. Unlike ordinary personal loans, with flexible loans you are only charged interest on your outstanding balance each month. Standard personal loans prescribe fixed monthly repayments fixed. However, subject to a set minimum amount (for example 3% of the outstanding loan balance or 25 with one bank, 1.75% or 50 with another) payable by direct debit, flexible loans allow you to decide how much you repay each month. Flexible loans allow you to repay your loan early without incurring any additional charges other than the outstanding balance that is due, and sometimes offer further flexibility in that you may make lump sum reductions to the balance of the loan without being charged for doing so. What flexible loans also offer is the ability to re-borrow money that you have paid back, should you need to do so. Flexible loans can be suitable for those whose income varies, such as the self employed, allowing you to pay extra off the balance as and when you please. The benefit to this is that the flexible loan will be repaid earlier, thus saving you a substantial amount of interest.

Flexible Mortgage Schemes
This is a term that describes a number of new mortgage schemes and is based on the fact that some of these lenders calculate the interest on the mortgage on a daily - rather than annual basis. This offers the lenders the opportunity to be more flexible with the management of the account than would otherwise be the case. That said, there is a wide range of lenders advertising that they are flexible in outlook. These will range from lenders who will offer you one account from which to base all your savings and borrowings. From this one account you will operate your mortgage, savings accounts, current account and any other borrowings. However, not all 'Flexible Schemes' are as flexible and this and some will simply offer payment holidays or an ability to overpay each month to either build up a fund to draw on at a later stage or to help redeem the mortgage early.

Flexible repayment/drawdown
Allows you to vary monthly payments to fit temporary changes in your circumstances. You can pay off some of the loan amount in months where you have excess cash (for example, as a result of a bonus or extra commission), or you can reduce payments, or even withdraw cash, when you need extra funds. Not common on dedicated car loans.

Freehold (NOT SCOTLAND)
This describes the tenure of a property where ownership of the property and land is held indefinitely. This compares with leasehold property where the property is held for a limited period of time.

FTSE 100 Index
The FTSE 100 Index is the most widely-quoted and 'popular' index for tracking the London stockmarket. The FTSE 100 contains the shares of the top 100 U.K. companies ranked by market capitalisation . It's jointly sponsored by the Financial Times, the London Stock Exchange , and the Institute and Faculty of Actuaries and marketed by a company called 'FTSE International'.The 'FTSE' is a market capitalisation-weighted index, re-weighted every day. During the day, it is calculated every minute. Shares enter and leave the index every quarter. Additions and deletions are performed strictly in accordance with a set of rules supervised by the FT-SE Actuaries Share Indices Steering Committee, an independent body.

FTSE All-Share Index
The FTSE All-Share, or to give it its full name, "The Financial Times Actuaries All Share Index" is the most comprehensive U.K. stockmarket index. It's calculated once a day and is referred to in the market as 'the All-Share'. For the index, see Stockmarket. The 'All-Share' is made up of companies accounting for more than 90 per cent of the market capitalisation of all listed companies on the London Stock Exchange. The index is an arithmetic mean of 800 shares and fixed interest stocks. These are segregated into different industrial sectors, allowing investors to track the performance of one particular industry and the companies which make it up. The weightings of the individual companies (the constituents) are calculated according to their size (their market capitalisation , so movements in big companies' shares will have more impact on the index than those of smaller companies. As well as showing price movements, the index shows average yields and price/earnings ratios. The All-Share Index and its constituent indices have been calculated and published daily since 1962 in the Financial Times in collaboration with the Institute of Actuaries (these are people who found accountancy too exciting).

Further Advance
This is an additional loan made by the existing mortgage lender and secured by the first charge on the property. The Further Advance can be used for a variety of purposes (subject to the lender's approval) such as home improvement, purchase of freehold or personal purposes, such as debt consolidation.

Gazumping
Gazumping is the term used to describe a situation in which the seller of an asset (let's say a house) accepts a purchase offer, having already accepted another lower offer from another potential buyer. In other words, the seller changes his allegance to a second buyer who offers more money. A buyer with ready cash will often be in a position to gazump somebody who has to raise capital through a mortgage. This is because under English law, the seller is not legally committed to go ahead with the sale until the point at which contracts are exchanged. Gazumping tends to become a feature of property bull markets, where house prices are racing ahead and buyers begin to panic that they may find their potential dream home rising in value out of their 'price range'. Estate agents having put a buyer and seller together often discover a fresh potential buyer appears on the scene. The agent then has a judgement to make, does he advise his client, the seller to switch allegance to the new purchaser. Estate agents are frequetly portrayed as bandits -sometimes justifiably - but bear in mind sellers who may have acted disreputably will often blame the intermediary - the 'poor old' estate agent gets the blame!

Gold Card
Gold credit cards usually have higher credit limits than normal credit cards. Gold charge cards, which normally carry a higher annual fee, are often linked to an automatic overdraft. Gold cards offer a range of special "add-on" benefits like free travel insurance.

Guaranteed Income Bond
A guaranteed income bond is a single premium insurance bond which pays a fixed amount of income annually and returns the original sum invested at the end of a specified period. Beware of bonds which offer high returns but may set performance benchmarks for the return of your capital - if these targets are not met your income is effectively no more than the draw-down of your capital.

Guarantor
A guarantor is a person other than the borrower who guarantees the mortgage repayments. A Guarantor can sometimes be used to support a borrower who has insufficient income to qualify for a mortgage in their own right. The Guarantor will normally need to have sufficient income to support the new mortgage in its entirety after taking into account any existing mortgage and other commitments they have personally. The Guarantor becomes responsible for the whole mortgage repayment if the borrower defaults.

Hedge Fund
A hedge fund is an investment fund which specifically uses options and futures contracts to make money. Originally the term described a fund that reduced its risks by covering the possibility of a fall in the value of the securities it held by holding others which would probably rise in value - usually futures or options contracts. Now, many hedge funds operate in the futures markets without ever actually bothering to hold the underlying securities.

Home Buyers Report
A type of survey report that is more detailed than a Mortgage Valuation but not as in depth as a Full Structural Survey. A Home Buyers Report is often carried out by the proposed lenders surveyor and the report can then be used for the lender to replace the Mortgage Valuation in addition to acting as a detailed report for the borrower. A Home Buyers report may not be suitable for certain types of property where a Structural Survey may be more relevant. If in doubt talk to the surveyor you propose to use.

How Interest is Charged
Interest is charged on credit card transactions if the credit card amount is not cleared in full by the 'payment due date'. Even if part of the total amount due is paid, interest will generally be charged on all that month's transactions. The date from which interest is charged varies and this affects the amount of interest which accrues. For most cards, interest on purchases is charged from the date the item was charged to the account or the date the item was purchased, but for a few cards it can be from the statement date. Some cards have no interest free period even if the account is cleared in full - these cards usually have a lower interest rate