your handy money dictionary

The electoral roll is a fancy term for the list of people who are registered to vote in an election. Being on the electoral roll is helpful for credit applications as lenders use it to verify your address and identity, and it showcases your "responsible citizen status" vibes.

When you fail to meet financial obligations such as loan payments or bill payments, it's called a default. It's important to remember that life happens and we all stumble sometimes. It's what you do going forwards that matters.

Creditworthiness is your financial street cred, determining your eligibility for loans and credit cards with favourable terms. It's like your personal financial reputation, shaped by factors such as credit history, income, and overall financial situation.

Credit refers to money that is lent on the basis that it will be repaid later, often with interest. Whether through a loan, credit card, mortgage, car finance, or other instalment plan, it can be a powerful tool to help you reach your goals, but responsible management is key.

Credit reference agencies act as guardians of your financial reputation, collecting information about your credit activities to create credit reports that lenders use to assess your creditworthiness. They ensure transparency in the financial world, acting as referees in the credit game.

A broker is your friendly financial matchmaker, connecting you with lenders for the best loan or mortgage deals. They do the legwork, comparing options and guiding you through the complexities of the financial world, making your life easier.

In the world of finance, a bureau refers to a credit reference agency, like a financial Sherlock Holmes, collecting and compiling information about your credit activities to help lenders make lending decisions. So, when you hear the term "bureau," don't worry, they're just doing their detective work to keep the financial world in motion.

Adverse credit refers to a less-than-stellar credit history, which could be a result of missed payments, defaults, or even bankruptcy. Having adverse credit can affect your overall score, but becomes less significant the older it gets.

Once you start earning over £12,570 a year (or £1,047.50 a month, for 12 months) you will have to pay 20% tax from your earnings. You will have a unique tax code that corresponds to your wages so that tax can be automatically deducted from your earnings. However, sometimes you may have to update your tax code manually, which is usually as a result of fluctuating wages or new job positions throughout the year. So, if something looks off in your payslip, like too much or too little tax deducted, you may want to log in to HMRC to see what’s going on. Even as self-employed, if your earnings are over £12,570 a year, you will have to pay tax. This is usually done retrospectively, filing a self-assessment tax return online by the 31st of October the following year, in which HMRC will then send a bill for you to pay as tax. There can be repercussions for avoiding paying tax (if you are earning over £12,570 a year), so it’s important to make sure you’re on the right tax code/ band on the HMRC website.

You pay NI contributions as a form of tax once you are over 16 and earn over £242 a week (or over £6,725 a year if you’re self-employed), it’s calculated at 13.25% of your monthly earnings. National Insurance essentially goes towards your state pension. You can’t opt out of NI contributions.

A loan is a way to borrow money and repay it in smaller payments, with interest rates added on top. Loans can be secured or unsecured, the difference between them being that secured loans require you to offer up something you own as collateral (something to be forfeited in case you can’t repay your loan). A mortgage, for example, requires the house you buy to be collateral - meaning the bank can repossess the house if you can’t repay your mortgage loan. An unsecured loan doesn’t require anything to be given up, such as a credit card or student loan. Instead of collateral, you will most likely be charged fees or interest rates until you pay up.

An overdraft is essentially the point at which the money in your current account (bank account) has reached the minuses. Once you go into minus money, you are likely to be paying interest based on how much you are in your overdraft. Being in your overdraft will also impact your credit score, unless you have a pre-arranged overdraft allowance. (Student? See Student Overdraft)

Essentially, earning interest on interest. Any interest you earn or owe is added to the original sum of money. A double-edged sword, in which you could increase your savings quicker or you could accelerate your debts.

Simple interest means no interest is added on top of interest, so you only pay interest on the initial amount of money involved.

Annual Percentage Rate - the yearly interest generated from a credit card or loan. Oftentimes, banks will advertise interest for a monthly basis, but the yearly interest rate can be more useful as it can give you a good, clear idea of how much you're going to pay to take out a loan. Essentially, APR’s affect how much extra you will need to pay off your unpaid credit card payments or loan payments. Lenders are required to tell you what your APR is, and APR’s could vary between purchases, cash advances and balance transfers (to name a few). There can also be an introductory APR (often low or 0%) that credit card companies sometimes offer to entice new customers to sign up for a card.

Annual Percentage Yield. Where APR only involves simple interest, APY differs as it takes compound interest into account - thus APY is often higher in value than APR. This means that your interest can increase at a quicker rate than initially anticipated, so APY’s can be useful to see how much you could be paying if you don’t make your payments on time.

An increase in the price of goods and services, and the subsequent cost of living. Deflation being the opposite.

Universal Credit is a monthly payment from the government to aid your living costs. It’s often eligible for people on low income, out of work or unable to work. The amount of money received from Universal Credit is determined by your income, savings and other factors. You can apply for credit online, in which you will then likely be interviewed to determine what you can receive. Universal Credit is becoming the all-in-one benefit scheme, slowly replacing other benefits such as Jobseekers Allowance.

A mortgage is a loan, given by a bank, as a way to help you buy property. You pay back this borrowed money (plus interest) in monthly payments over time (usually 25 years). A mortgage differs from a standard loan because it’s secured against your property, which basically means the bank can repossess your property if you can’t make your monthly payments. Mortgages require a ‘deposit’, or down payment, straight off the bat. The deposit prices can differ, but to exemplify: The house you want to buy costs £200,000. The bank wants a 10% deposit in order for you to mortgage the house. This means you pay £20,000 upfront, and the bank will lend you the remaining 90% (£180,000) in order for you to buy the house. You will then pay back the lended money to the bank, plus interest. There are various plans in place that can make the down payment or mortgages more achievable for first time buyers.

A credit score is a kind of measurement for banks to know if you are eligible for credit, loans, mortgages etc. It is measured by your credit history - number of open accounts, levels of debt, repayment history, as well as other factors. Having no credit history, which is a common case for young adults, doesn’t exactly mean you are eligible yet, despite this appearing like a good thing to some people. The higher your credit score, the better you look to banks and potential lenders. Having a ‘zero’ credit score is a common misconception - you either have no credit score (and therefore no numerical value) or you are within the 300-850 bracket. Credit scores affect a lot of loan types, including mortgages and car financing. Effectively, you need to prove that you can pay back loans in order to improve your score.

There are services available that allow you to ‘buy now and pay later’ (such as Klarna), which involves paying back the money you owe in monthly instalments or in 30 days. This is being increasingly implemented on sites such as H&M and Urban Outfitters. However, one thing to note is that BNPL schemes could now negatively impact your credit score (put into place 1st June 2022) and interest rates tend to be higher than a regular credit card’s interest rates.

With a credit card, you can spend money to a certain, pre-set limit which you then pay off at the end of the month. It’s sort of like a buy-now-pay-later scheme, except credit cards are more protected (through laws), secure and can improve your credit score. There is a minimum amount that you will have to pay each month but you should pay the full balance. Otherwise you’ll be charged interest until you pay off the balance and end up paying more for items than you had originally intended (see APR).

Some forms of payment types for things such as cars give you a choice to buy outright or to finance. Financing involves paying what you owe in monthly instalments, with interest added on top. Paying upfront is usually cheaper, and financing usually means paying more in total over the period of the financing agreement.

Individual Savings Account - savings or investment accounts that earn tax-free interest, so you never pay interest on what’s there. Essentially, the more money within the account, the more interest you will earn from it over time. ISA’s aren’t the only, or sometimes the most effective, way of saving money and earning interest. Personal savings accounts have allowances that offer you to earn interest tax-free as well, so it’s good to compare various options to see what could be the best for your personal situation and needs.

With a personal savings account, basic-rate taxpayers have an allowance of up to £1,000 - meaning they can earn up to that much in savings interest without paying any tax. This process is automatic, so you don’t have to do anything. This blurs the difference between personal savings accounts and ISA’s slightly, but the main takeaways are that ISA’s are always out of the tax-man’s reach, and so can be more secure in the long-term (especially for higher tax-rate taxpayers). Personal savings accounts can oftentimes have higher interest rates, and could be more beneficial for shorter-term savings (especially for basic-rate taxpayers).

Once you retire from work, (the minimum age of retirement is 66 years old), the government will pay you a sum of money per week (depending on your national insurance record aka how much you’ve worked in your life), which is called state pension. You can also partake in private pension schemes, usually opted in within the company you work at (if applicable), in order to tuck away some earnings into a pot of money that will be released to you upon retiring. You can do this with any company you work for during your lifetime, as long as they offer such a scheme. There are also private pension schemes outside of your work that you can opt into. Opting into private pension schemes does not affect your state pension.

Investing is the process of putting money into something, or buying something, that will increase in value over time so that you can gain a profit. All investments have a certain level of risk attached to them, but can include the likes of buying stocks, property or even items like vintage clothes or collectables. The aim is to buy low and sell for a higher price to earn a profit. If you buy stocks or shares, you are buying a ‘slice’ of a company - in which your share value will go up if the value of the company goes up. Sensible investing usually means a longer-term strategy - it’s not a get-money-quick scheme. Especially when stocks or shares are involved, it’s often a big waiting game. In order to invest in stocks or shares, you will need a brokerage account (an online platform to buy, sell and track stocks and shares) and you could even open a Stocks and Shares ISA account (see ISA) to put your earnings into.

Ethical investing is any investment which aims to increase in value whilst also considering social/ environmental good, in order to bring about change of some kind that’s positive for society or the environment.

Stocks represent ownership of a company. A company will have shares, which people can buy and thus invest their money into, in order to have stocks in that company. Companies sell shares in order for them to get money to grow their business. People will invest in stocks, or shares, for the possibility of stocks increasing in value - which would mean their money increases too, gaining a profit. This is dependent on whether the company grows in profit and value, otherwise the money you put into stocks could decrease in value.

Shares differ from stocks. Where stocks represent a person’s part ownership in a company, a share refers to a single unit of ownership in a company. Think of stocks as the bigger part of the picture, where shares can make up part of a stock. For example, if you invest in stocks, you could have a variety of shares within different companies. Shares can be a very hands-on approach to investing, but there are ways to make it more manageable such as investing in index funds instead. Your money is spread across a lot of different companies with index funds, so it's often considered a lower-risk way of investing (though risks are still involved).

Buying or selling a stock as soon as possible for the best price available.

Buying or selling a stock at a specific or better price. You could end up getting a better price for the shares this way, but it can take longer to buy.

Cryptocurrency is a digital currency that works as a medium of exchange through a computer network, not reliant on a government or bank. Instead it relies on cryptography (a code-based security measure). It’s essentially a virtual money currency used online - Bitcoin being a good example of a form of cryptocurrency. Cryptocurrencies can be volatile, however, as they are high risk and speculative - so ensuring you know the risks before you start trading with or investing in crypto is important.

Student Finance England can pay for your tuition fees and give you what’s called a maintenance loan (essentially a lump of money to pay towards rent, groceries, living). Your tuition fees paid for and maintenance loan lended both add up to your overall student loan. Your maintenance loan is dependent on your household income (typically your guardian’s income, sometimes your own income - if eligible). You will need to pay back your overall loan as soon as you start earning over £524 a week, £2,274 a month or £27,295 a year (before tax). 9% of your earnings will then automatically go towards repaying your student loan. There are alternative ways to receive student loans, which can be found here.

If you have a student bank account, you may have a pre-arranged overdraft allowance which means you can dip into your overdraft without paying interest - as long as you are within your allowable amount. Go beyond that amount, and you will likely pay some sort of fee or interest - and you could start negatively impacting your credit score. Because this pre-arranged overdraft allowance is part of your student bank card, it’s important to know when your bank is going to change your card to a current account or graduate account, for after your studies. This will affect how your overdraft works. Some banks will keep you on a student bank card for some time after graduating, so you can pay back your overdraft. Some banks will change your account to a graduate account for some time, which usually holds the same 0% interest rate on overdrafts but on a slowly narrowing allowance. Current accounts (or any non-student/ graduate accounts) have interest rates or fees when going into your overdraft, at any point, and will start affecting your credit score if you are in your overdraft.