11. Checking the Applicant’s Credit Status Flashcards
What should the lender look for in financial statements?
Bottom line balance on bank statements
Regular income
Regular payments out
Overdraft
Returns checks and failed direct debits
Mortgage statements
Maintenance payments
What is not revealed by references and statements?
Pending court hearings
Action for maintenance/child support
Borrowing is yet to be drawn down
Cash transactions, e.g. undeclared income or cash borrowings from the family
What is a default?
Where the borrower has missed one or more payments and did not respond satisfactorily to the requests to correct the problem
The lender can issue a notice of default to the borrower. The credit record shows the default for six years from the date of the default notice, even if the arrears are paid off. The record will show the amount of the original default and the balance of the date of the report, including any payments made since the default
What may a payday loan suggest to a lender?
The applicant may not be able to manage their finances effectively and that they may potentially be a monthly income deficit
Describe lenders’ credit scoring
Almost all lending institutions use credit scoring as a feature of the assessment process. Scores are given to certain aspects of the application, based on historical data relating to risk.
A certain number of points are allocated to each category so that once the points for each category added up the total reflects the credit score.
Applications that receive more than a certain score, often known as the cut-off score, are accepted, well those that do not are declined
When credit scoring, what specific factors will lenders consider?
Age, income, occupation, existing commitments, credit searches, conduct of any existing bank or loan accounts with the lender
What is the role of a guarantor?
Typically, guarantees are taken from parents on behalf of the child’s borrowing. It is usually a written undertaking to answer for the debt, default or miscarriage of the individual.
Sometimes lenders feel that a borrower may be able to afford a slightly higher mortgage then they would normally offer, but are reluctant to lend the higher amount without additional security over and above the property.
What is a full liability mortgage guarantee?
The guarantor is liable for the entire debt if the borrower defaults on the mortgage payments
The guarantor must usually be able to demonstrate that they can afford at least 100% of the mortgage, in addition to their own existing commitments
What is a limited liability mortgage guarantee?
The liability is limited to the difference between the loan the lender would normally agree and the loan needed, with a possible additional percentage of perhaps 10%
For example if the property was purchased for £200,000, the borrower had a £20,000 deposit and the lender would normally lend £150,000 based on the borrowers income, the guarantee would be for £30,000 +10% of the borrowers shortfall, totalling £33,000
The liability is shown as a percentage of the mortgage
When does insolvency occur?
When a person is liabilities exceed their assets
or
When they cannot meet their financial obligations when they volume
What is a CCJ (County Court judgement)?
When a person is unable to pay their creditor the creditor can bring a civil case to the County Court. The court can then make a CCJ against the debtor, Setting out how the debt should be repaid.
This will normally be as a lump sum of a regular instalments.

If the terms of a CCJ are not met what can the creditor do?
They can go back to court for further action which may result in an attachment of earnings order.
This means that the individuals employer must deduct a certain amount from their pay and pass it on to the court for onward payment to the creditor. Attachment of earnings orders can only be made against employees
Where are CCJs listed and how long do they stay on the register?
They are listed on the register of judgements, orders and fines for England and Wales.
They stay on the register for six years unless they are paid in full within a month of the judgement. If they are paid after one month, they are shown as satisfied on the register.
CCJs that have not been paid are shown as unsatisfied for the six-year period
What happens if the sole owner of a property goes bankrupt?
If the property has at least £1000 equity in it property will transfer to the trustee in bankruptcy who becomes the legal owner and can sell it to settle debts
A bankruptcy restriction notice is entered at the land registry against the property. This shows the bankrupt owner Is no longer the legal owner of the property and cannot sell or deal with matters relating to the property; only the trustee can do so
What is an IVA?
An individual voluntary arrangement is an alternative to bankruptcy, supervised by an insolvency practitioner. If the arrangement is agreed, the creditors accept a reduced payment, for example 60p for every £1 owed
The creditors meeting must be held for an IVA to be arranged, and creditors representing at least 75% of the debt amount must agree to the IVA
Once the agreement is confirmed, interest and charges on the debts are frozen and the debtor makes fixed monthly payments towards the debt
