Checking The Applicant's Credit Status Quiz

Comprehensive CEMAP quiz covering credit reference checks, credit scoring, anti-money laundering regulations, and guarantor arrangements. Test your knowledge of credit file analysis, data protection requirements, and regulatory compliance for mortgage credit assessments.

CEMAP Topics Covered: credit reference agencies, credit scoring models, anti-money laundering checks, guarantor arrangements, debt solutions, bankruptcy, IVAs, credit file analysis, and regulatory requirements.

This quiz is specifically designed for CEMAP students preparing for their exams and mortgage advisers maintaining their professional knowledge.

Checking The Applicant's Credit Status Quiz

1. Which regulation implements the Mortgage Credit Directive?

A. Financial Services and Markets Act 2000
B. Companies Act 2006
C. Consumer Rights Act 2015
D. Data Protection Act 2018

2. What is the primary purpose of checking bank statements in mortgage applications?

A. To identify all bank accounts held by the applicant
B. To verify the applicant's regular income and expenditure patterns
C. To assess the applicant's investment portfolio
D. To determine the applicant's credit score

3. Which of the following would not appear on a standard credit reference search?

A. County Court Judgments
B. Payday loans taken within the last month
C. Transactions with family members
D. Electoral roll registration

4. How long does a default typically remain on a credit file?

A. 3 years
B. 10 years
C. Indefinitely
D. 6 years

5. What is a key limitation of the electoral roll for address verification?

A. It only includes homeowners
B. It excludes non-UK citizens
C. It is updated annually with a 1 October cutoff
D. It requires manual submission by lenders

6. Which factor is least likely to improve a credit score?

A. Long-term employment
B. Timely bill payments
C. Low credit utilization
D. Multiple recent credit applications

7. What does a "cut-off score" represent in credit scoring?

A. The maximum loan amount a lender will offer
B. The minimum needed for mortgage approval
C. The interest rate threshold for high-risk borrowers
D. The point at which a guarantor is required

8. Which organization is not a major UK credit reference agency?

A. Experian
B. Equifax
C. FICO
D. Credit Karma

9. Why might lenders view payday loans negatively?

A. They suggest potential budgeting difficulties
B. They indicate short-term financial risk
C. They are often fraudulent
D. They reduce credit utilization ratios

10. What is the primary advantage of credit scoring systems for lenders?

A. They eliminate all human bias
B. They significantly reduce default rates
C. They bypass affordability checks
D. They allow rapid processing of high-volume applications

11. Which information would not be visible on a bank statement review?

A. Regular salary deposits
B. Pending court judgement
C. Overdraft usage
D. Direct debit failures

12. What is the main risk of "thin file" applicants?

A. They often have hidden debts
B. They automatically qualify for higher interest rates
C. They cannot be credit scored accurately
D. They are statistically more likely to default

13. Which practice could indicate potential money laundering?

A. Large cash deposits without explanation
B. Inconsistent salary payments
C. Regular mortgage payments
D. Use of overdraft facilities

14. Under data protection laws, applicants have the right to:

A. Opt out of credit reporting
B. Remove negative credit history
C. Opt out of all credit checks
D. Access their credit reference files

15. What is a key weakness of credit scoring models?

A. They only work for unsecured lending
B. They cannot predict individual behavior with certainty
C. They ignore income verification
D. They are prohibitively expensive to implement

16. Which factor would most likely trigger a manual review of a mortgage application?

A. A late mortgage payment
B. Employment in the public sector
C. A score just below the cut-off threshold
D. Use of a mortgage broker

17. What does a returned cheque on a bank statement suggest?

A. Potential cash flow issues
B. A monetary refund
C. High credit utilization
D. Fraudulent activity

18. Why do lenders use multiple data sources for credit checks?

A. To get an aggregated credit score
B. To exempt data protection laws
C. To cross-verify information completeness
D. To identify guarantor candidates

19. Which legislation primarily governs credit reference agencies?

A. Data Protection Act 2018
B. Consumer Credit Act 1974
C. Financial Services and Markets Act 2000
D. Statute of Frauds 1677

20. What is the primary purpose of anti-money laundering checks?

A. To reduce interest rates for low-risk borrowers
B. To accelerate mortgage approvals
C. To secure solicitor approval
D. To identify illegitimate sources of funds

21. Which factor is most likely to improve an applicant's credit score over time?

A. Closing all credit accounts
B. Maintaining stable, well-managed credit
C. Frequently changing addresses
D. Going without a mortgage

22. What is a key requirement for a valid guarantee under the Statute of Frauds 1677?

A. Verbal agreement between parties
B. Witnessed by a solicitor
C. Written documentation
D. Registration with Land Registry

23. In a "limited liability" guarantee, the guarantor is typically responsible for:

A. The full mortgage debt
B. The shortfall beyond normal lending criteria
C. Just the interest payments
D. Only the deposit amount

24. Which relationship is most likely to raise concerns about undue influence?

A. Employer and employee
B. Neighbors
C. Business partners
D. Parent and adult child

25. What must lenders ensure before accepting a guarantor?

A. The guarantor understands the obligations
B. The guarantor owns multiple properties
C. The borrower has no other debts
D. The guarantee is on unsecured lending

26. Which case established the need for independent legal advice for guarantors?

A. Lloyds Bank v Waterhouse [1991]
B. National Westminster Bank v Morgan [1985]
C. Barclays Bank plc v O'Brien [1994]
D. Royal Bank of Scotland v Etridge [2001]

27. What is a key difference between a guarantor and a joint borrower?

A. Guarantors have property ownership rights
B. Joint borrowers need lower income verification
C. Guarantors can be released more easily
D. Joint borrowers share legal ownership

28. Under MCOB 11.6, lenders must assess a guarantor's:

A. Political affiliations
B. Affordability as if they were the borrower
C. Inheritance prospects
D. Existing property

29. What typically happens to guarantor savings accounts if the borrower defaults?

A. The lender can access the funds
B. They earn less interest
C. They are transferred to the borrower
D. They become tax-free

30. Which scenario would likely invalidate a guarantee?

A. The guarantor received independent advice
B. The borrower had poor credit history
C. The lender changed policy
D. The guarantor was misled about the terms

31. What is a key risk for joint borrower/sole proprietor arrangements?

A. They avoid all SDLT liabilities
B. They require higher deposit percentages
C. The non-owner borrower has liability without property rights
D. They are exempt from credit checks

32. Which document would not be required for a guarantor?

A. Proof of identity
B. Credit report
C. Income verification
D. Mortgage deed

33. What is the primary advantage of a guarantor mortgage for first-time buyers?

A. It may enable higher borrowing
B. It eliminates affordability checks
C. It guarantees fixed interest rates
D. It removes credit history requirements

34. In Lloyds Bank v Waterhouse [1991], why was the guarantee invalid?

A. The loan amount was too small
B. The guarantor was illiterate and misinformed
C. The borrower had excellent credit
D. The lender used outdated forms

35. What must happen if a borrower requests a further advance with an existing guarantor?

A. The guarantor must automatically consent
B. The original guarantee becomes void
C. A new credit score is unnecessary
D. The guarantor must be informed and may refuse

36. Which type of guarantee is now prohibited?

A. Limited liability
B. Property-secured
C. Unlimited liability
D. Income-contingent

37. What is a key duty of lenders regarding guarantors?

A. To ensure guarantors understand their exposure
B. To maximize guarantee amounts
C. To access guarantors via their panel
D. To prioritize family members as guarantors

38. Which factor is least relevant when assessing a guarantor?

A. Their understanding of the commitment
B. Their relationship to the borrower
C. Their financial stability
D. Their political views

39. What happens if a guarantor requests release from their obligations?

A. The mortgage automatically defaults
B. Lenders typically assess borrower's independent affordability
C. The borrower must find a replacement
D. Lenders must always agree

40. In joint borrower/sole proprietor arrangements, what SDLT advantage exists?

A. Complete SDLT exemption
B. Reduced rates for all parties
C. Avoidance of second-home surcharge for non-owner
D. Deferred payment options

41. What is a critical weakness of guarantor arrangements for the guarantor?

A. They do not receive regular account statements
B. Their credit score decreases automatically
C. They can veto property sales
D. They may be liable without early warning of borrower default

42. What defines insolvency?

A. Liabilities exceeding assets
B. Temporary cash flow issues
C. High credit utilization
D. 3 missed mortgage payments

43. Which debt solution involves freezing interest and making fixed payments?

A. Administration order
B. Individual Voluntary Arrangement (IVA)
C. Debt Relief Order
D. Bankruptcy

44. How long does bankruptcy typically remain on a credit file?

A. 3 years
B. 12 years
C. 6 years
D. Until debts are repaid

45. Which debt solution is available for debts under £30,000 and minimal assets?

A. Debt Relief Order
B. Bankruptcy
C. Debt Management Plan
D. Consolidation loan

46. What is the primary risk of debt consolidation mortgages?

A. They always reduce monthly payments
B. They convert unsecured debt to secured status
C. They significantly reduce credit scores
D. They capitulate interest charges

47. Which court order enforces child maintenance payments?

A. CCJ
B. Bankruptcy Order
C. Administration Order
D. Attachment of Earnings

48. What is the primary purpose of a Debt Management Plan?

A. To legally bind creditors
B. To negotiate reduced payments informally
C. To protect assets from seizure
D. To remove negative credit entries

49. How long does a Debt Relief Order typically last?

A. 6 months
B. 3 years
C. 1 year
D. 5 years

50. Which insolvency solution always involves court proceedings?

A. IVA
B. DMP
C. DRO
D. Bankruptcy

51. What is a key advantage of an IVA over bankruptcy?

A. It may allow retention of property
B. It's always shorter in duration
C. It doesn't appear on credit files
D. It requires no creditor agreement

52. Which debt solution freezes all creditor actions for a temporary period?

A. Administration Order
B. Breathing Space Scheme
C. Consolidation Loan
D. Trust Deed

53. What is the minimum debt threshold for bankruptcy in England/Wales?

A. £1,000
B. £10,000
C. £5,000
D. No minimum

54. Which credit file entry would be most concerning to lenders?

A. Unsatisfied CCJ from 2 years ago
B. Multiple late payments in the last 6 months
C. Electoral roll discrepancy
D. Active bankruptcy

55. What happens to unpaid CCJs after 6 years?

A. They are automatically removed from credit files
B. They double in value
C. They convert to bankruptcy
D. They become secured debts