Credit and Debt Jargon

First of all there is a difference between credit, charge, store cards and debit cards.

  • Credit Cards. Eg. Visa Mastercard (Access)
  • Charge Cards Eg. American Express or Diners
  • Store Cards Eg. Dorothy Perkins, Marks & Spencers
  • Debit Cards Eg. Switch and Delta

Credit Cards are issued by banks and building societies. They often have a yearly fee, though some don’t charge students. The credit card company will give you a fixed limit up to which you can spend. Each month they will send you a statement, it will tell you what your outstanding balance is, what minimum payment you have to make and when. You can either pay all the outstanding amount, or part of it, but you will have to pay a minimum monthly repayment. The amount of interest is charged on what is outstanding and usually from the day you made the transaction.

Terms and Conditions

When you apply for a credit card you make a contract with the issuer. This regulates your relationship with the card issuer and sets out the terms and conditions which apply. READ THEM CAREFULLY! Don't get caught out!

Read the terms and conditions on the account. Are there any nasty clauses in the small print? Terms and conditions should set out:-

  • How interest is calculated
  • Who can use the card
  • How the card can be used
  • Your responsibility to look after the card
  • What you have to do if you lose you card or if it is stolen
  • How you can cancel your card
  • What information you have to give to the card company
  • Are there any penalties if you go over your authorised limit or if you miss a repayment?

The Consumer Credit Act 1974 applies to transactions made using credit cards and to the agreement you have with the card issuer. When you buy goods or services, you make an agreement with the trader, it is separate from your agreement with the credit card company, you do have rights to take action against the trader if there’s a problem with your purchase. In some cases it can be difficult to do this but you may have additional rights courtesy of the Consumer Credit Act. Under this Act the card issuer is equally liable with the trader for compensating you if your agreement with the trader is broken (depending on cost of good/service). This does not apply to store cards or charge cards.

Credit Card Cheques

Some credit card companies issue cheque books, but while these can be useful, do check out the small print e.g. whether you have to pay a fee to use them, and at what rate of interest these types of transactions are charged at. (Normally cheques are treated as cash withdrawals and incur the usual handling and daily charges.) Also, unless traders who accept them have a special deal with the card company, you aren’t protected if the goods you buy by cheque are faulty or if the company stops trading.

Credit Card Top Tips:

  • There is no such thing as free money. Credit Cards are really just instant loans, and like loans, they need repaying.
  • Credit cards are the cheapest way of obtaining credit-SHORT TERM.
  • Make sure that if you are going to use your credit card that you can clear the balance at the end of the month.
  • Check whether the company you use charges penalty fees e.g. for missing a monthly instalment.
  • If you are using the card as a last resort, it may be a good idea to talk to your bank, (see the SAC’s banking leaflet). It may be, that given the necessary information and a well argued proposal, you could convince the bank to extend your overdraft that bit further, which will be interest free or at a rate a lot lower that the credit card company are charging.
  • If you are going to take out a credit card, it may be worth thinking about which company you make an agreement with. If you take one out with the same company you bank with it is possible that if you get behind with you repayments your banking arrangements may be affected.

Interest Rates

This is known as the APR (Annual Percentage Rate). The higher the APR, the more you will repay monthly.
Is the interest rate FIXED (stays the same) or VARIABLE (will it increase)? Is the interest paid SIMPLE (calculated on the amount you owe) or COMPOUND (calculated not only on the amount you owe but also on the interest they put onto the account).
The longer amount of time you elect to take to repay what you owe, the more interest you will repay over all.

Credit Rating

When you apply for credit, the lender will assess your credit application to check that you are a good credit risk. The lender may use one or more of the following to do this:

  • The loan application form itself
  • Credit scoring
  • A credit reference agency
  • A bank reference

There are 3 main credit reference agencies in the UK. These are: Equifax, Experian and Callcredit. They hold what is called your 'credit reference file' or 'credit report'. 

Credit Scoring

The lender will allocate points to information given on your loan application form and information provided by credit reference agencies. These points are added together to produce your credit score. Scoring above the lenders "pass mark" will help you to get credit. Credit scoring is different to the file kept on you by a credit reference agency. The lender does not have to tell you why you have been turned down, but should give an indication of the reason. A poor credit score can mean that you may not be able to get credit or if you can, you may have to pay a higher interest rate.

I have been "blacklisted" what does this mean?

It is a common misconception that lenders and credit reference agencies keep a blacklist of peoples' details for credit purposes. A blacklist as such does not exist. Before giving you credit, lenders such has banks, loan companies and shops want to check whether you, as a prospective borrower, are an acceptable credit risk. They want to know your full credit history, good or bad. One of the ways they do this is by taking into account information obtained from a credit reference agency. Credit reference agencies keep information on borrowing records on almost every adult in the U.K. These agencies do not hold blacklists or give any opinion about whether or not you should be given credit. They just provide factual information about your credit record. It is the lender who decides whether you are an acceptable risk.

What information do credit reference agencies disclose to lenders?

  • Details of electoral role entries
  • County court judgements outstanding and administration orders
  • Details of bankruptcy and individual voluntary arrangements
  • Details of repossessions
  • Credit account information kept by lenders, from whom you have borrowed money
  • Names and addresses of people who have moved without letting lenders know
  • Lenders who have made a credit reference check on your file
  • Information about people with the same surname who live with you

If I have been refused credit how do I access a credit reference file?

You should approach the lender in writing within 28 days of their refusal of credit and request the name and address of any credit reference agency they used for your credit application. The lender is obliged to provide the name and address of the agency used in writing within seven working days, from receipt of your letter. You may then approach the credit reference agency with a written request for a copy of your file. You should send the appropriate fee they require. The request should contain your present address and any address you have lived at during the last 6 years. The file should be supplied within 7 working days.

What do I do about errors held on file?

Make a written request that the incorrect entry be changed or removed, providing the agency with any supporting evidence of the error. The agency should send you a reply within 28 days from receipt of your letter. If the agency informs you that it will not change or remove the entry, you can, within 28 days of receiving the agency's letter, send it a notice of correction to be added to your file. A notice of correction is your written statement of up to 200 words, giving an explanation of why you consider the entry to be incorrect. This can be taken into account by lenders, doing credit checks.

Top tips

  • If you have been refused credit, ask the lender why you have been turned down. It may be due to bad credit rating or some other reason.
  • If you think that the lenders' decision to refuse you credit is wrong and that you have further relevant information that may change its' mind, request a review of the decision.
  • Keep copies of any letters you write to the lender &/or credit reference agency. These can be used later has evidence if there is a disagreement.
  • If you have a history of paying on time this is likely to help you get further credit.

For further details about your Credit Reference file, how to obtain this and how lenders decide whether to give you credit, please click here.   

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