Glossary - TaxCalc

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Contents
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Access
Credit Limit
Additional Cardholder
Credit Record/History
AER
Credit Reference Agency
Affinity Cards
Credit Sale
American Express
Credit Score/Rating
Annual Fee
Credit Union
Applied (or Nominal) Interest Rate
Creditor
APR
Debit Card
Arrears
Debt
ATM
Debtor
Balance (in relation to credit cards)
Default Charges
Balance Transfer
Deflation
Bankruptcy
Direct Debit
CAB - Citizens Advice Bureau
EAR
Card Tart
Fraud
Cash Advance
FSA – Financial Services Authority
Cash Back
Grace Period
Cash Withdrawal Rate
HP - Hire purchase
CCCS - Consumer Credit Counselling
Service
Inflation
CCJ – County Court Judgement
Interest Free Period
Chargeback
Interest Rate
Charge Cards
IVA – Individual Voluntary Arrangement
Churners
Loan - secured
Consolidate
Loan – unsecured
Contactless Cards
MasterCard
Credit
Merchant
Credit Broker
Minimum Payments (DANGER!!)
Credit Card
Money Lender
Credit Check
MIR - Monthly Interest Rate (BEWARE)
Credit Crunch
National Debtline
Interest
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Official Receiver
Overdraft
Overpayment
Pawnbroker
Payment Protection Cover
Revolving Balance
Rewards
Settlement – full and final
Skimming
Smart Card
Standing Order
Stoozing
Store Card
Underwriting
Visa
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A
Access
The Access credit card was issued by RBS, NatWest, Lloyds and Midland in 1972 and was
discontinued when it was sold to MasterCard in the 1980s.
Additional Cardholder
It is often possible to have more than one credit card for any particular account. All purchases will
be shown on one statement and may be itemised. It is the primary account holder’s responsibility to
make necessary payments.
AER
AER stands for “Annual Equivalent Rate” and is applied to savings and current accounts which
are in credit. It will indicate how much interest you will earn over the course of the year.
Like APR, it is useful to know the AER on any savings account so that you can compare different
accounts like-for-like and get the most out of your savings.
You should also check whether the AER is gross or net, as the two are different. The gross AER
is the rate of interest paid before deducting income tax, whereas net AER is the rate of interest
paid after allowing for the deduction of 20% tax for basic rate taxpayers.
Affinity Cards
n affinity card is a normal credit card, but is connected to a particular business or organisation
A
– normally a charity, political party or other institution. When you use the card, a certain percentage
of your spend goes towards that organisation. They will normally be a MasterCard or Visa and
will be accepted worldwide.
American Express
American Express is an international corporation whose services include travel and financial
products. The company is best known for the American Express charge card which enables the
holder to obtain goods and services without the need to pay cash. An annual fee is charged
instead of interest and monthly statements must be settled in full.
Annual Fee
Some credit card providers charge an annual fee and some don’t. Many consumers make the
mistake of assuming an annual fee is a rip-off, but you should take every aspect into account –
the fee might significantly lower your APR.
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Applied (or Nominal) Interest Rate
This is the rate of interest that the lender uses to calculate the amount owed on your monthly
balance. It is not the same as the APR, which is a rate that is calculated as if you owed the
money for an entire year.
APR
APR stands for the Annual Percentage Rate. It is the rate of interest that a lender will charge per
year for a loan, mortgage, hire purchase agreement, credit or store card.
All lenders are required by law to tell you what their APR is before you sign an agreement and
it will vary from lender to lender. Normally, the lower the APR, the better the deal so it’s worth
shopping around if you’re thinking of having a credit or store card.
There are often different APR rates for purchases, cash withdrawals, balance transfers, cheque
transactions and money transfers and these can vary dramatically.
You should watch out for introductory rates of interest and make sure there are no additional
fees and charges involved as this can really hike up the cost of lending. You should also be
aware that some lenders advertise the monthly interest rate, which could make the card or loan
seem very cheap – always find out what the APR% is as this is the figure that will help you to
compare to other lenders.
Arrears
If you fall behind with payments and, for example, your rent or mortgage or debt is not repaid
when it should be, the money owed is called ‘arrears’. Rent and mortgage arrears are ‘priority
debts’, which means the consequences of not dealing with them are serious and there could be
a risk of eviction.
ATM
ATM stands for Automatic Teller Machine, more commonly known as a cash machine. They are
primarily used to withdraw cash from bank accounts or credit cards although some ATMs offer
other services such as mobile phone top ups and means to deposit cash into bank accounts.
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B
Balance (in relation to credit cards)
This is your amount outstanding on your credit card and is the total of all your purchases, cash
advances, balance transfers, fees and interest charged, less any payments made.
Balance Transfer
If you have an outstanding balance on your existing credit card on which you are paying interest,
it may be worthwhile comparing the cost of your current card with those available in the market.
You can easily do this by entering a dummy card in the “Enter Cards” screen in this program and
see the difference against your other cards.
If you find a card that makes your debt less expensive you could take out the new credit card and
arrange for the outstanding balance on your old card to be transferred to it. Beware though, there
is normally a fee to transfer a balance. Make sure it doesn’t outweigh the savings in interest.
Bankruptcy
Bankruptcy is a serious matter – it is a legal status that usually lasts for a year. However,
information about a bankruptcy stays on a credit record for at least six years and a Bankruptcy
Restrictions Order can remain there for as long as 15 years. Lenders see these records and mark
you down when scoring your credit application because they fear you may not honour your
obligations to them if you have failed with others in the past.
Declaring yourself bankrupt can be a way of clearing debts you can’t pay, but you’ll have to
give up possessions of value and the interest in your home. You don’t have to become bankrupt
just because you’re in debt - you can try to make arrangements with your creditors (people you
owe) instead.
A court can declare you bankrupt by issuing a ‘bankruptcy order’ after it has been presented
with a ‘bankruptcy petition’ by your creditor. When you’re bankrupt, your property, possessions
and excess income are used to pay off your creditors. At the end of the bankruptcy period, most
debts are ‘discharged’ (cancelled).
If you do become bankrupt, you will have certain obligations:
• You must give the Official Receiver details of your finances, assets and creditors
• You must look after your assets and hand them over to the Official Receiver with the relevant
paperwork, such as bank statements and insurance policies
• You must tell your trustee (either the Official Receiver or insolvency practitioner) about any
new assets or income during your bankruptcy
• You must stop using credit cards and bank or building society accounts
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• You must not obtain credit over £500 without telling the creditor that you’re bankrupt
• You must not make payments direct to your creditors (there are exceptions to this, such as
mortgage arrears and outstanding child support payments)
• You may also have to go to court and explain why you’re in debt.
If you’re thinking about declaring yourself bankrupt or you’re being threatened with bankruptcy,
it’s important to seek independent advice. Several agencies offer free help, including the Citizens
Advice Bureau, National Debtline and the Consumer Credit Counselling Service (CCCS).
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C
CAB - Citizens Advice Bureau
There are over 400 Citizens Advice Bureaus in England and Wales: independent registered charities
who provide free information and advice on legal, money and other problems. You can find your
local CAB in the phone book or on their website - www.citizensadvice.org.uk
Card Tart
Credit card tarts are people who don’t remain loyal to their card provider and move their debt from
one 0% card to another in order to secure the minimum possible cost for their debts. It is a good way
of obtaining cheap credit, but requires good management of your card, a good credit score and
regular repayments made, even if it’s only the minimum amount.
Once the 0% period is coming to an end and the standard APR is due to take effect, a card tart will
move any remaining debt to another 0% deal and make a balance transfer to the new card in order
to gain an additional 0% period. You should always check the transfer fee before moving any debt
as many card companies charge balance transfer fees of up to 3% of the debt shifted, so you need to
question whether it’s worth the cost of moving.
Whilst it is good for short-term needs, card tarting could have an adverse effect on your credit
scoring if done too often. Agencies monitor the number of cards you have and obtain reports from
credit card issuers on how you deal with them. You may be refused credit if a lender decides that
you have too much outstanding debt with other lenders.
Cash Advance
A credit card cash advance is cash which can be accessed with a credit card. The usual way to
obtain a cash advance is by swiping the card at an ATM, entering a personal identity number
(PIN) and receiving cash in exchange. There is normally a fee for withdrawing cash on a credit
card and interest is usually charged at a higher rate than that of buying goods on the card.
On most credit cards you can obtain cash whilst abroad and receive the currency of the country
you’re visiting. The amount you withdraw is converted to British Sterling and included on your
statement, however there is usually an additional fee for the cost of conversion and very often
the exchange rate is not as good as obtaining currency to take with you.
Cash Back
Cash back credit cards give back a percentage of the total money charged to your card each
year. If you use your card a lot – and keep up with your repayments, this can be quite beneficial
and is worth shopping around for.
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Cash Withdrawal Rate
Credit card providers often charge a different rate of interest, normally much higher, for withdrawing
cash as opposed to making purchases on the card. There is also usually a minimum fee for having
cash on a credit card which could work out to be false economy if you only want a small sum of money.
CCCS - Consumer Credit Counselling Service
As well as CAB, the CCCS also has a helpline, and specialise in providing free, independent
and impartial advice to people who have debt problems. CCCS is now well established as an
important and growing source of money advice and the focus for the repayment ethic.
It is the leading debt management charity in the UK. For more information go to the CCCS
website – www.cccs.co.uk
CCJ – County Court Judgement
Someone you owe money to (a ‘creditor’) can take a County Court Claim action against you to
claim the money. If you pay the amount outstanding, you can avoid a hearing or judgement. If
not, there’ll be a simple court hearing in private which you can attend if you wish, or just send
the information the court asks for by post.
The court doesn’t find anyone ‘guilty’ or ‘innocent’. It looks at the facts and decides whether you
owe any money, and if so, how you should repay it. After the court hearing, the court may issue
an order saying you must repay the debt. This order is called a County Court Judgement, a CCJ
and will either be for the amount agreed between you and your creditor or, if you can’t agree, a
payment set by the court.
Unless you pay the full amount of the judgment within one month, your CCJ will be recorded
on the Register of County Court Judgments for six years.
Organisations such as banks, building societies and loan companies use the registered information
to help decide whether to give you credit or loans, like a mortgage. Some companies charge for
‘credit repair’ services that claim to help you get CCJs taken off the register – it is wise to get free,
independent advice first before using one of these companies.
You can get incorrect information removed yourself by paying £2 to see your credit file and
asking for mistakes to be corrected. Remember though, a judgment is only taken off the register
if:
• you paid it in full within one month
• it’s set aside by the court
You can search the record for any CCJ registered against you and have it marked ‘satisfied’ if
you’ve paid off the debt.
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Chargeback
A credit card chargeback is the reversal of a card transaction. It occurs when either the card issuer
or the card owner challenges a charge on a credit card account. The credit card company or issuing
bank investigates the claim and if the charge is found to be unauthorised, fraudulent, or mistakenly
billed, a chargeback will be issued and the cardholder will no longer be responsible for paying.
Charge Cards
Whilst a Charge Card may look like a credit card and you can use it like one, unlike a credit card,
Charge Card accounts must be settled in full each month. Failing to pay normally incurs penalty
interest charges which are significantly higher than credit card interest rates. Interest is not
charged on the amount but there is normally an annual fee for the card. American Express is a
typical example of a Charge Card.
Churners
A term used by service providers such as credit card companies for those customers who leave
in any period to use the services of a rival company. “Churners” are often tempted by the free
gifts that companies offer to attract their business, but they will often move on when the next
offer arrives. Like a milk churn, they may go round in circles, and end up back with companies
they have already used.
Churning can be a good way to maintain the lowest possible rates, especially if the balance is
frequently transferred from one credit card to another. However, you should be aware of the
pitfalls of constant churning:
• Every time you apply for a credit card, bank loan or utility, your credit file is checked.
Frequent applications will lead other lenders to question why you are applying for so much
credit in such a short space of time, and may be reluctant to lend to you, or to provide you
with their services.
• Companies are likely to treat their loyal customers better than those who have only been
with them for a short period of time. Long standing customers are particularly likely to
benefit from increased credit card limits, as the card issuer knows their payment history.
• Frequently changing your accounts can be a very time consuming process. You may wish to
ask yourself if it is really worth all the hassle of changing card providers for a small saving on
an interest rate reduction of a fraction of a percent.
• Some companies offer you better deals if you have multiple products with them.
• Leaving your existing service provider without calling them to ask for a better deal may mean
that you lose out on an even better offer than the new provider is enticing you with.
• Free gifts are often worth much less than they appear to be. If you already have a DVD player,
how useful is another one?
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Consolidate
To consolidate your debt is to take out a single, new loan to pay off several existing debts such as
credit cards. This can be a good way of taking control of your finances as you will always have a
set monthly repayment amount which will enable you to budget more easily and you will know
when you are going to finish paying the debt.
You will normally pay a lower rate of interest on a loan than on your credit and store card rates,
unless, of course, you have a 0% card.
However a consolidation loan may not always be your best option and you need to be careful
that you check all the details of the loan to ensure it’s not going to cost you more in the long run
and take longer to repay.
Things to check if you are considering a loan:
• Make sure there are no extra charges for setting up and repaying the loan
• Will the interest be added at the start of the loan? If so, you’ll be paying interest on that interest,
as well as on the amount you borrowed
• Find out if it is going to be secured against your property – your home could be at risk if you
can’t keep up the payments
• Be realistic about what you can afford to pay each month – sit down and work out your
budget: your total income against how much is being spent each month
• All your eggs will be in one basket - if you get into difficulties, it may be more difficult to come
to a new arrangement with a single lender
Contactless Cards “Contactless” is a new feature being introduced on both credit and debit cards in the UK and
should make purchases quicker and more convenient for both retailers and consumers. Cards
featuring Contactless payment technology can be used for purchases of £10 or less by simply
holding the card to a secure reader - without the need to enter a PIN or sign a receipt.
Although a Contactless transaction does not require a PIN to be entered, from time-to-time the
terminal will ask that the cardholder undertake a full contact chip and PIN transaction. This is
designed to deter fraudulent use should the card be lost or stolen; each time a PIN is used it reaffirms that the cardholder is in possession of their card.
Credit
Credit is borrowing money, usually to buy goods, by means of a credit card, loan, HP agreement,
finance agreement or mortgage. Interest usually has to be paid on the borrowing at an agreed
rate and there may also be administration costs to pay, which may also incur interest.
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Credit Broker
Credit brokers arrange loans from, for example, insurance or finance companies and make a
charge for this. If the broker has not arranged a loan within six months, the maximum they can
charge you is £5. However, if the agreement would have been a mortgage and the broker is
authorised by the FSA, there is no limit on what they can charge you for their services. To find
out if a broker is authorised by the FSA, go to the FSA’s website at http://www.fsa.gov.uk/
Pages/register
Credit Card
A credit card can be supplied by banks, finance companies and shops and are used to pay for
services and goods, in the same way as you would use a debit card. However, there are some
important differences. When you use a debit card, the money comes directly out of your bank
account so if the money isn’t there, the transaction will be declined. When you use a credit
card, you are not spending money from your own bank account, you are borrowing money
from your credit card provider: money that you have to pay back and money that you may be
charged interest on.
The main attraction of credit cards is that they allow you to borrow and can be more flexible
than loans. You can choose how much to spend within your credit limit and how much to
repay each month subject to a minimum, usually between 2% and 5% of the amount you owe.
Of course, if you don’t clear the balance, interest is charged.
You will get a monthly statement saying how much you owe (including interest) and will be told
the minimum amount you must pay that month. You may also have to pay an annual fee.
The credit card allows you to spend whenever you want without regard to what’s in your bank
account so long as you remain within your credit card limit. When used carefully, they provide
flexibility and convenience especially if you’re away from home and in most cases you can enjoy
a credit-free period, typically of up to 56 days before interest is charged to the account.
However, if you’re looking to borrow money, they are among the most expensive options available
with annual percentage rates of interest (APRs) which seemingly bear little relation to the Bank
of England base interest rate.
Credit card issuers tend to belong to at least one major credit card network, e.g. Visa or MasterCard.
Credit Check
When you apply for a loan or credit, lenders want to know that you’re going to be able to repay
any money they lend you and one of the ways they do this is by means of a credit check. To do this
they will look up your credit history or record with one of the three main credit reference agencies
in the UK: Equifax, Experian and CallCredit.
You can’t stop lenders checking your credit record, but the law says you can see what’s on it. You’ll
have to pay, but, as at October 2009, credit reference agencies can’t charge more than £2 for this.
You may also be able to see your file online, but this may cost more.
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The Data Protection Act 1998 gives you the right to have information on your credit file corrected
or removed if it’s wrong (but not just because you don’t like it). The credit reference agencies will
tell you how to do this. Some commercial credit repair companies offer to remove information from
your file to “clean” it, however the FSA warns against using them - it’s best to get in touch with the
credit reference agencies yourself.
Credit Crunch
A credit crunch, also known as a credit squeeze, finance crunch or credit crisis, is a reduction in
the general availability of loans (or credit) or a sudden tightening of the conditions required to
obtain a loan from the banks.
It is a period of time where major banking and financial institutions experience a shortage of
cash and therefore do not have the funds to lend to their customers. As a consequence, the
customers do not have the ability to borrow cash, which in turn means that businesses across
the country sell far less than they used to.
Credit Limit
This amount is set by your credit or store card provider and is the most you can borrow on your
card at any one time.
Your card issuer will have decided on your credit limit based on the information you supplied
on your application form and on its credit scoring process. The card issuer will, as a matter of
course, have checked out your credit record with a credit reference agency.
If you attempt to go over your credit limit you may find your credit card being refused by
retailers or, if the spending is allowed, you may be faced with financial penalties from your card
issuer.
Credit Record/History
When you apply for a loan, mortgage or credit/store card, lenders will check your credit record
with specialist credit reference agencies that collect information from the courts, other lenders
and the electoral roll. The three main credit reference agencies in the UK are Equifax, Experian
and Callcredit.
If you have had credit problems in the past don’t immediately rule out the high street lenders.
They claim to take each case individually and in some circumstances would consider someone
with a County Court Judgment (CCJ) or if you have ever been declared bankrupt. However, if you
are refused credit, lenders don’t have to tell you why.
It is worth knowing that you could be unaware that you have a CCJ on your credit record,
perhaps caused by a bill being unpaid if it was sent to an old address. If you feel there has been
an error made in your credit record you can obtain your credit file, ask for an investigation and,
if proved correct, have your record altered.
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Beware of so-called credit repair companies though, especially if they try to offer you loans at
high rates of interest.
Credit Reference Agency
A credit reference agency holds files on the borrowing records of nearly every adult in the UK.
The information is collated from a variety of sources and may hold details of:
• people on the electoral register at your address(es)
• your credit agreements, including details of any late payments & defaults - this can be held for
up to six years
• County Court Judgments and bankruptcy orders against you - these are also be held for six years
• previous applications for credit
• people living at the same address as you, such as your family
The three main credit reference agencies in the UK are Equifax plc, Experian plc and Callcredit
plc. They do no more than supply information to lenders who then use the information as part
of their credit scoring. If you’d like to have a look at your own files, you can contact the agencies
and order your credit file for a small fee. If you spot information you think is incorrect, you
should write back asking for the record to be amended.
Credit Sale
This is the most common type of credit agreement. Under credit sale, you buy the goods at
the cash price. You usually have to pay interest but some suppliers offer interest-free credit.
Repayment is made in instalments. You are the legal owner of the goods as soon as the contract
is made and the goods cannot be returned if you change your mind. The supplier cannot
repossess the goods if you fall behind in repayments but can take court action to recover the
money owed if you are in arrears.
Credit sale agreements are now more common than hire purchase (HP) agreements and it is
important not to confuse the two. See HP for more information.
Credit Score/Rating
This is a system used by lenders to calculate the statistical probability that a loan they grant
to you will be repaid. Different lenders have slightly different rules for assessing risk but each
lender works out the characteristics of ‘good’ and ‘bad’ customers, based on its past experience.
Homeowners or borrowers with steady incomes may be considered less likely to default.
Each answer you give on your application form will be given a rating. If the total ‘score’ is above
a certain figure, your application is accepted. Because credit scoring is the key to different
lenders’ risk management they do not easily reveal the precise details of how it works.
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Every score is individual and calculated using a mathematical formula that evaluates all types
of information on your credit report, compared to information patterns in millions of past credit
files. The score can then identify your level of future credit risk.
To work out your credit score lenders ask you for details of:
• your income
• your expenses
• major things you own - like your home
• any other loans you currently have
They give points for each of your answers. If you don’t score enough points, they may:
• refuse to give you a loan
• offer to lend you a smaller amount
• charge you a higher rate of interest
If you have been refused credit, you are entitled to know whether a credit reference agency
was consulted (and be given their contact details) and also whether or not your credit report
adversely affected your application.
If you are refused credit, under the Data Protection Act 1998 you have the right to ask that your
application be assessed manually. Although you have no legal right to credit or to a detailed
explanation of why any application you make is turned down, credit industry codes of practice
do encourage lenders to at least tell you the principal reason behind their decision.
A lender won’t usually tell you why they’ve refused you a loan but they may give you a general
idea if you ask them.
Credit Union
A credit union is a self-help co-operative whose members pool their savings to provide each
other with credit at a low interest rate. If a member fails to repay a loan, the credit union can
seek repayment through the courts.
Creditor
Creditors are the people or companies to whom you owe money for goods and services supplied
by them to you on credit. Your credit card company is also your creditor if you have an outstanding
balance on your card.
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D
Debit Card
You can use a debit card in much the same way as a credit card but instead of still owing money
after making your purchase, the funds are automatically withdrawn from your bank account
and you pay for them immediately (or within a few days).
Most debit cards can be used to purchase goods and services in shops and withdraw money at
home and abroad from ATMs. Some debit cards may also be used as cheque guarantee cards.
Whilst you can also use a debit card to purchase goods on the internet and mail order, you
should be aware that they have less legal protection from fraud than credit cards. Consequently,
it is generally safer to use a credit card in these situations.
Debt
Debt is something which is owed. It could be in the form of money, assets or favours. A debt
is created when a creditor agrees to lend a sum of money or assets to a debtor and is usually
granted with expected repayment; in many cases, plus interest.
Debtor
Debtors are the people or companies who owe you money for goods or services you have
supplied to them.
Default Charges
Most credit card companies have charges that will be applied if you do not keep your side of
the agreement. You will incur charges if you breach the agreement you have signed with your
credit card company such as:
• making a late payment (i.e. failing to pay at least the minimum repayment by the date it is
due, shown on your statement)
• going over your credit limit (i.e. spending more than has been agreed)
• if a payment is returned (e.g. if the cheque you have written to pay off your account
bounces).
In 2006, the Office of Fair Trading declared that “A default charge should only be used to
recover certain limited administrative costs”.
The OFT also stated that “where credit card default charges are set at more than £12, the OFT
will presume that they are unfair and is likely to challenge the charge unless there are limited,
exceptional business factors in play”.
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Since then, many consumers have reclaimed their money, by:
• Writing to their bank requesting list of charges for the past six years
• Making a claim that these fees are unlawful
• Raising a court summons
There are companies that will do this for you but it is often a lengthy process.
Deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation
occurs when the annual inflation rate falls below zero percent (a negative inflation rate),
resulting in an increase in the real value of money – allowing you to buy more goods with the
same amount of money.
As inflation reduces the real value of money over time, conversely, deflation increases the
real value of money – the functional currency (and monetary unit of account) in a national or
regional economy.
Direct Debit
A direct debit is an instruction to your bank from a supplier to make payments from your bank
account to a company or organisation on a regular basis. This may be used to pay for goods or
services or perhaps used as a regular donation to a charity. There will always be a direct debit
mandate, or form, issued first that contains all the details and the bank should not authorise
payment unless the mandate is signed by the account holder.
Unlike a standing order, which puts you in control of the amount and timing of a payment, a direct
debit actually allows any amount to be deducted from your bank account at the request of your supplier.
You should receive notification from the supplier if the amount or timing is to change.
You may have a direct debit set up to make a payment against your credit or store cards each
month. As you will notice, this figure can differ every time, often paying either the minimum
amount due or the entire balance, depending on what you have agreed with the card issuer.
There are strict banking rules in relation to direct debits and companies and organisations have
to qualify to be able to set them up with their customers.
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E
EAR
EAR stands for the ‘Equivalent Annual Rate’. The EAR applies to an overdraft or an account that
can be in credit which then goes overdrawn - as opposed to a loan or credit card, which would
receive an APR (Annual Percentage Rate).
The EAR lets you know how much your borrowing will cost you, if you were to remain
overdrawn for a whole year.
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F
Fraud
Fraud is a crime, punishable by heavy fines and imprisonment. In the broadest sense, fraud is an
intentional deception made for personal gain or to damage another individual.
There are various methods of fraud and as fraudsters become more astute with technological
skills, credit card fraud is on the increase resulting in banks trying to stay one step ahead of the
game. Every card holder should be alert to growing crime and take steps to prevent your card
from being targeted:
• Never let your card out of your sight.
• Keep it somewhere safe – in a zipped pocket in your handbag or purse, or in a pocket in your
wallet.
• Don’t leave the card where it can easily be spotted.
• Never tell anyone your PIN or write it down. Instead, change your PIN to something more
memorable.
• Always keep your receipts and check your statement every month. If you see anything you
don’t recognise, call your card provider immediately.
• Never leave your card where it can be copied. For instance, if you’re in a restaurant, ask the
waiter to bring the card terminal to you or go with them to the till. Never give anyone your
card and tell them your PIN.
• If anyone asks for your PIN, let your card provider know immediately.
• Keep your card provider up to date with your personal information – if you change your
address, let them know, so they can get in touch if they need to check anything with you.
• Tell your card provider whenever you’re going abroad, so you can use your card without
any problems. Good card providers will be keeping a look out and will notice if there is an
attempted transaction somewhere outside the UK. The transaction could be rejected if you
don’t tell them about your trip.
• If you are going abroad, take the lost and stolen card emergency number with you in your
mobile and write it down as well in case your phone gets stolen.
• If a cash machine looks like it’s been tampered with, always use a different one.
• Make sure no one can see you putting your PIN in, cover the PIN pad with your other hand
whilst entering your PIN.
• Put your card and your cash away safely before you leave the machine.
• If you ask for a receipt, take it with you to check it against your statement when it arrives and
then dispose of it safely.
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FSA – Financial Services Authority
The FSA is an independent body that regulates the financial services industry in the UK. It sets
the standards that they must meet and can take action against firms if they fail to match the
required standards.
It was set up by UK government who remains responsible for the overall scope of the FSA’s
regulatory activities and for its powers.
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G
Grace Period
A credit card’s grace period is the period of time between when purchases are made and when
interest will begin to be charged on them, this is often 20 – 25 days. If the balance is settled for
these purchases inside of this period no interest will be charged on them.
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H
HP - Hire purchase
Unlike a Credit Sale, under a hire purchase (HP) agreement, you are technically hiring the goods
until you pay the final instalment. You will not own the goods until then. This means that you can
end the agreement and return the goods at any time. However, you will owe any overdue instalments
and, if less than half of the total price has been paid, you may also have to pay the difference.
The company loaning the goods may be able to repossess them if, for example, you fall behind
with payments. The lender does not have to sell the repossessed goods to reduce your debt.
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I
Inflation
In economics, inflation is a general increase in level of prices of goods and services in an
economy and consequent fall in the purchasing value of money over a period of time.
When the price level rises, each unit of currency buys fewer goods and services. Consequently,
inflation is the destruction of the purchasing power of money – a loss of real value in the
internal medium of exchange and unit of account in the economy.
A chief measure of price inflation is the inflation rate, the annualised percentage change in a
general price index (normally the Consumer Price Index) over time.
Interest
Interest on credit cards is charged not only on the purchases and cash withdrawals, but very
often on the annual fee, handling fees, late payment or default charges as well.
Furthermore there are often different rates of interest for different types of transactions such as
purchases, balance transfers, cheque transactions, money transfers and cash transactions and
these can vary dramatically.
In fact, credit card issuers now use over a dozen different methods of charging interest. If you
pay your bill in full, this usually won’t affect you but if you had two cards with the same APR
rate and used them in exactly the same way, one could end up costing over twice as much as
the other just because it calculated your interest differently. This is because the amount you are
charged depends not just on the card’s rate but on when it starts and stops charging interest.
This can make the calculating of the interest very complicated and because there are so many
variations and different rates, we are not able to account for every circumstance in this program.
Interest Free Period
Many credit cards are now offered with either an initial period free of interest or free interest on
a balance transfer. These introductory offers tend to be for periods of between 6 and 12 months
although some card issuers promise no interest on any outstanding balances transferred until
you pay them off. Do bear in mind there may be strings attached to offers like this, including
requirements that you make further purchases on the new card.
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Interest Rate
An interest rate is expressed as a percentage (%) and is the price a borrower pays for the use of
money they do not own.
IVA – Individual Voluntary Arrangement
If you’re struggling to pay your debts and you can’t work out an informal arrangement with
your creditors, you can apply to court for an IVA where you formally agree to pay part, or all, of
your debts over a period of time (typically five years). You’ll need an insolvency practitioner to
set up the agreement and 75 per cent (by value of your debts) of your creditors must agree to it.
Bear in mind that IVAs take several months to organise, and you may have to pay a large
administration fee.
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L
Loan - secured
A bank or building society can grant you a loan even if you are not a customer of theirs. They
may ask for security on the loan, for example, house deeds or an insurance policy, which means
that any security offered may be at risk if you default on a loan.
Loan – unsecured
An unsecured loan and a personal loan are effectively the same thing, but providers use
different names to describe the same product.
A personal loan is sometimes described as an unsecured loan because it allows you to borrow
money without having to provide security against it, such as your home or car.
Instead, an unsecured (or personal) loans provider will base their decision on granting you a personal
loan by using your personal credit history. This is verified by a credit check to determine your
credit rating.
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M
MasterCard
MasterCard is a credit card payment system formed by the ICA (Interbank Card Association) and
has over 20,000 worldwide banks as members. When you are offered a credit card, it will usually
either be a MasterCard or a Visa, although there are others including American Express, Diners’
Club, Discover and JCB.
You are very unlikely to notice any major difference between levels of acceptance for Visa or
MasterCard at retail outlets, although some banks and cash machines will only enable cash
advances of one card type.
Merchant
A merchant is a business person or organisation who trades in commodities that they do not
produce themselves, in order to earn a profit.
Merchants can be of two types:
• A wholesale merchant operates in the chain between producer and retail merchant. Some
wholesale merchants only organise the movement of goods rather than move the goods
themselves.
• A retail merchant or retailer sells commodities to consumers (including businesses). A shop
owner is a retail merchant.
Minimum Payments (DANGER!!)
What the credit card companies don’t tell you!
Credit card companies want you to pay off as little as possible each month so that you pay more
interest over a longer period of time.
Once you use your credit card and run up an outstanding balance, you have to make a
payment each month in order to start paying off the amount you have spent. You may be
fortunate enough to be able to pay it off in full, but if not, you will be required to pay at least
the minimum payment that the credit card issuer will allow. However, as My Debt Cruncher will
show you, this can prove extremely costly and could mean you’re repaying your debt for years
to come.
The minimum amount will be a value equating to more than the interest which has been
calculated for the month. Most card issuers will stipulate a minimum percentage of the
outstanding balance or a specific minimum payment, whichever is the greater value and both
should be displayed on your card statement
Typically, most credit card issuers will require a minimum payment of £5, OR between 2% and
5% of the outstanding balance on your credit card account, whichever is the greater value.
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So, for example:
With an outstanding balance of: £1000
At an Annual % Rate (APR) of: 19.9% (equal to 1.524% per month)
The interest calculated for the first month would be £15.24
Therefore your card provider would stipulate that you have to pay at least this amount,
plus a sufficient sum to pay at least some of the balance off.
If the required minimum amount is 2.5% on your outstanding £1000 balance, then you will
have to pay £25 for the first month. Please note though, it will be different the following month,
whether or not you make any further purchases on the card. Here’s why, presuming you never
spend on the card again:
Opening balance
£1000.00
Less your 1st minimum payment £ 25.00 (2.5% of £1000)
________
£ 975.00
Plus month 1 interest
£ 15.24 (1.524% of £1000)
________
£ 990.24
Less your 2nd minimum payment
£ 24.76 (2.5% of £990.24)
________
£ 965.48
Plus month 2 interest
£ 15.09 (1.524% of £990.24)
________
£ 980.57
Therefore, by only paying the minimum amount, you will still have only paid £19.43 off your
balance, even though you’ve actually made payments of £49.76!!
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Some card issuers stipulate a low minimum % payment OR the total of the charges (such as
interest, insurance, handling fees etc) plus £5, whichever is the lower amount. Because of the
complication this presents, we cannot account for such circumstances in this current version of
My Debt Cruncher. If that is the case with your card, the best thing to do is enter the minimum
% to result in a worse case scenario.
Money Lender
Money lenders usually lend small amounts of money at high rates of interest (the highest
APR we’ve seen so far is 2689%!). They must be licensed and if they are not licensed, they are
operating illegally.
Illegal money lenders (known as loan sharks) often work from home, charge very high interest
rates and don’t provide you with much paperwork to confirm the arrangements they have
made with you. Sometimes, loan sharks will take other illegal actions to collect the money they
have lent you, such as threatening violence or taking away your credit cards or valuables.
You can find out whether a money lender is licensed by checking the Financial Service
Authority’s Register at http://www.fsa.gov.uk/register/home.do. If you borrow money from
someone who doesn’t have a licence, you haven’t broken the law – they have.
There is a website which tells you more about loan sharks. Go to: http://stoploansharks.direct.gov.uk/
index.html.
In England, Wales and Scotland, if you think a money lender is operating without a licence,
you can speak in confidence to the loan shark hotline. People running the hotline can give you
advice about your situation and the information you provide helps them to take action to stop
illegal money lending. The hotline number is 0300 555 2222. You can also report loan sharks by
email on: [email protected].
MIR - Monthly Interest Rate (BEWARE)
Credit card companies are required by law to tell you the Annual Percentage Rate% (APR) on
the card you have with them,however some providers put greater emphasis on their MIR% in
their advertising and leaving the APR for the small print. Watch out for this – as you will see in
the Interest Rate Convertor in the program, what seems like an attractive MIR of 3%, actually
results in an APR of a whopping 42.58%!
The APR% is not calculated by simply multiplying the MIR value by 12 which is why we’ve
provided the convertor in the program to help you achieve more accurate results.
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N
National Debtline
National Debtline offers free, confidential and independent advice on how to deal with debt
problems. Because the law concerning debt varies depending on whether you live in England
and Wales or Scotland, they offer debt advice for people living in different parts of the country.
You can call their helpline on 0808 808 4000 and also download useful publications from their
website: http://www.nationaldebtline.co.uk/
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O
Official Receiver
Official receivers are civil servants from the Insolvency Service (part of the Department for
Business, Innovation and Skills). They are attached to each court, and when a bankruptcy or
compulsory winding up is ordered, one of them will be appointed as official receiver for your
case. When appointed, the official receiver will interview you and take over the financial affairs
of you or your company.
Overdraft
A bank or building society may agree that your account, usually a current account, can go
overdrawn. It occurs when withdrawals from the account exceed the balance that is available.
Interest is usually charged for going overdrawn and fees may be charged if you go over the
agreed overdraft limit.
Overpayment
You can usually make overpayments on your loan or mortgage but beware that you won’t
be penalised for over-paying too much. Check the terms of agreement first. Furthermore, very
often, the interest calculated is based on the contractual monthly payment and does not take
lump sums or overpayments into account: this only reduces the term of the loan/mortgage, not
the interest.
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P
Pawnbroker
Pawnbrokers lend money against the value of property left with them and they must give a
receipt known as a ticket. Pawnbrokers agree to keep the property for at least six months but
you can get it back at any time during that period by paying off the loan plus interest. The
period can be extended by paying the interest only and re-pledging the property.
Payment Protection Cover
Payment protection insurance, or PPI, is insurance that will pay out a sum of money to help
cover your monthly repayments on mortgages, loans, credit/store cards or catalogue payments
if you are unable to work. This could be because you have an accident or sickness, or become
unemployed through no fault of your own, or if you die.
PPI is almost always optional and, if you decide to take it you should always make sure you
receive your insurance policy and read the terms and conditions carefully. The firm should
give you a Policy Summary which should set out the key features and benefits, as well as any
significant or unusual exclusions or limitations. If you have any queries about these, you should
ask the salesperson to explain the cover in more detail. This will help you make an informed
decision on whether to take out cover.
In the case of credit cards, the insurance will generally pay off a percentage of your outstanding
balance or the minimum payment each month for up to a year, but check which option is being
offered. This would mean that you may still have to pay any balance left after this time.
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R
Revolving Balance
A revolving balance is the balance that a cardholder carries from month to month, on which
interest is charged. Very often, transferred balances are not included in a revolving balance as
they usually have a 0% or lower interest rate applied to that amount.
Rewards
Some credit and store card providers offer rewards for using your card, ranging from cash back
to days out, points for every £1 you spend and even holidays and flights.
Whilst it can be tempting to take up these “free” offers, you should always check the small print
and always check how much your reward points are worth – they are very often valued at only
a fraction of one penny.
Card issuers simply want you to spend more on your card, for two reasons. First of all they make
a small percentage on every purchase you make using your card and second they will hope that
you won’t pay back the full amount each month and consequently accrue vast amounts of interest.
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S
Settlement – full and final
You may wish to offer your creditors (the people you owe money to) a full and final settlement.
This means that you ask the creditors to let you pay a lump sum which is less than the full balance
you owe on the debt. In return for having a lump sum payment the creditor agrees to write off
the rest of the debts.
You may be able to do this because you have come in to some money or have some savings
you can use, or maybe a friend or relative offers to put forward a lump sum to help you pay off
the creditors. Your circumstances may be very unlikely to change for the better in the future. It is
very important that you explain to the creditors that the money will not be available forever and
the friend or relative will not make the payments unless the offer is accepted.
Skimming
Skimming is when someone copies the data from your card’s magnetic strip onto another card
without your knowledge. It can happen anywhere – cash machines, shops, bars, restaurants
and petrol stations.
You should always make sure you can see your card when you’re making a transaction If someone
asks for your PIN and refuses to bring the PIN machine to you, refuse to give it to them, take your
card and call your credit card company immediately.
Smart Card
A smart card is like a mini-PC in your wallet and it can do anything a computer can be
programmed to do. The possibilities for smart cards are virtually unlimited and can be enhanced
with new functionality, like e-tickets, rewards points, personal preferences, and secure ID to
name a few uses.
Smart cards have many benefits over existing debit cards - they can store much more
information on them than traditional magnetic stripe cards and are expected to sharply cut
down on card fraud due to the highly sophisticated system of encryption locks and keys which
authenticate the card. They also provide far greater resistance against today’s fastest growing
fraud problem: skimming, where criminals duplicate information from the magnetic stripe of a
credit or debit card and begin using such cards for their own benefit.
It will be possible to, for example, store your mortgage details and your health records on a
smart card together with a quantity of cash which can then be used to pay for small purchases
such as newspapers and car parking.
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Standing Order
Unlike direct debits, a standing order is an instruction from yourself, (rather than a supplier),
to your bank authorising the bank to make a payment from your account to another person.
This can be an individual or a company/organisation and you stipulate the amount that is paid
and the frequency of the payment. You can very often set up a standing order online now,
otherwise it requires written confirmation to the bank.
Stoozing
The word “stoozing” came into existence from posts on the Motley Fool UK discussion boards
in early 2004. Many people were earning money on 0% deals before 2004, but one discussion
board contributor, “Stooze”, was apparently prolific in this and their technique therefore came
to be referred to as “doing a Stooze”.
The term Stoozing is used to describe the act of borrowing money at an interest rate of 0%, a
rate typically offered by credit card companies as an incentive for new customers. The money
is then placed in a high interest bank account to make a profit from the interest earned. The
borrower (or “stoozer”) pays the money back before the 0% period ends. The borrower does not
typically have a real debt to service, but instead uses the money loaned to them to earn interest.
Store Card
Store cards work like credit cards, except that while credit cards can be used anywhere, store
cards can only be used in a specific store or store group. Whilst they are often offered with
incentives of discounts and bonus loyalty points, they are usually much more expensive than a
standard credit card in terms of interest rates.
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U
Underwriting
Underwriting refers to the process that a large financial service provider (bank, insurer, investment
house) uses to assess the eligibility of a customer receiving their products (equity capital, insurance,
mortgage or credit).
The name derives from the Lloyd’s of London insurance market. Financial bankers, who would
accept some of the risk on a given venture (historically a sea voyage with associated risks of
shipwreck) in exchange for a premium, would literally write their names under the risk information
which was written on a Lloyd’s slip created for this purpose.
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V
Visa
A payment system developed initially by the Bank of America, and now owned by over 20,000
financial institutions. In the UK, there are four major types of Visa card available, all of which can
be used around the World:
a) Visa Credit Cards – issued by banks such as Barclaycard, Capital One and MBNA. You receive
a bill each month, which you can either pay off partially, or in full. Different cards have different
interest rates, incentives and payment terms.
b) Visa Debit Cards – these are attached to your current account and funds from spending on
debit cards are deducted within a few days of the purchase being made. Although debit cards
can be easier to budget with, you do not have the same level of payment protection which
some credit cards can offer you. You should be particularly careful when using debit cards for
online purchases, as the fraud protections are not as extensive.
Debit cards have no “credit limit”, as the amount you can spend is taken straight out of your
current account balance (or overdraft limit). Most Visa debit cards can be used in cash machines
or as cheque guarantees.
c) Visa Charge Cards – these are usually issued to companies to cover employees’ expense accounts,
and must be paid in full each month.
d) Visa ATM (Cash machine) Cards – these are issued with savings or young persons’ accounts
and allow users to withdraw funds from thousands of cash machines throughout the world.
Visa ATM cards do not act as a credit or debit card and cannot be used to guarantee cheques.
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