Bad Credit Jargon

Arrears

  If you miss payments on a credit card, mortgage, loan or other form of credit, these payments are classed as arrears and will usually be recorded on your credit file if no arrangement is made with the lender.

Bankruptcy

  Bankruptcy is the last resort for those with serious debt problems. If you apply to court for a bankruptcy order, your debts will be written off, but you will have severe restrictions placed on your financial activities and will be unable to obtain any form of credit. Once the period of bankruptcy has expired, you will still find obtaining credit difficult and expensive.

CCJ

  If you do not repay a sum owed to a lender or credit company, that company can apply for a County Court Judgement (CCJ) stating that you are responsible for that debt. This will be recorded on your credit file, even if you subsequently 'satisfy' that judgement by repaying the debt.

Credit File

  This is a record of your financial history, kept by the credit reference agencies. Details recorded include results of finance applications, payments missed, records of credit searches made on you, and much more.

Credit Reference Agencies

  These are the companies who collect information about your financial activity, and make your credit file available to those to whom you apply for credit to help them decide whether to approve your application.

Credit Scoring

  This is the process used by lenders to decide whether or not to approve any application for credit. Details on your credit file are combined with personal information such as income, outgoings, residential status etc. All these details are given a weighting and are used to arrive at a final score for 'credit worthiness'. If your credit score is below a lender's threshold, you will be refused credit.

Debt Management

  Debt Management companies will charge a fee for contacting all your creditors and arranging with them to lower repayments, pay interest only, or suspend payments temporarily. The intention is to arrive at a combined repayment that you can cope with, and avoid serious bad credit ratings.

Defaults

  If you persistently fail to make repayments on a loan, and attempts at debt recovery have failed, your account is said to be in default. This will be recorded on your credit file.

Identity Fraud

  This is when someone uses your personal details to fraudulently gain credit in your name - for example, using your personal details to apply for a credit card. This situation can have a very serious effect on your credit rating, but if you can prove you have been a victim of identity fraud the entries will be removed from your credit file.

IVA - Individual Voluntary Arrangement

  An IVA, or Individual Voluntary Arrangement, is a voluntary alternative to bankruptcy. Advised by an Insolvency Practitioner, you make proposals of repayment to your creditors, which if agreed, become legally binding. This prevents your creditors from proceeding with bankruptcy petitions against you.

Self Certification

  If you are self employed with no accounts, and cannot prove your income, it can be difficult to obtain credit. Some lenders will accept self-certified accounts where you declare your own income with no proof.