Credit Rating

Adverse Credit
When you have a poor credit rating this can be known as adverse credit, other terms are impaired credit, poor or bad credit.
We've now all heard the term 'sub-prime' and if you have an impaired credit rating then you will be classed as sub-prime. Your credit rating can become impaired due to missing a payment on a loan or mortgage.
If you do have adverse credit then this will show on your credit file which is able to be inspected or accessed by lenders and other organisations with a valid interest. If this shows up on a credit report then the lender may deem you to be a high risk borrower and so you may end up paying more interest than others on a mortgage or secured loan.

Sub-Prime
We have all now heard of the sub-prime market and the effect that it has had around the world on anybody that has anything to do with the financial market whether they have a mortgage or simply work for someone who has a mortgage or a loan.
There is also the Prime market which is the opposite side of the coin where lenders are concerned.

The terms Prime and Sub-Prime came about decades ago in Detroit in the USA when a property developer wanted to develop a particular area of Detroit, but was told that he would only be allowed planning permission if he built a wall dividing a certain area of the city from another. This turned out to be a dividing wall between predominantly white and predominantly black areas. The predominantly white area was more affluent than the predominantly black area and so the terms prime and sub-prime where brought into use by the lenders. In effect borrowers from the sub-prime area where charged more interest than borrowers form the prime area in an attempt to offset the lending risk. While the wall in effect became a physical segregation between the 2 communities the difference in the lending interest rates only served to cause a very real financial segregation between 2 otherwise neighbouring communities.

The sub-prime market has brought about the credit crunch?
When the number of defaulters on loans becomes too great, the company that holds the loan will become less able to trade and becomes insolvent. Any other companies or organisatons that are creditors of the original lender are then at risk as well.
So Company 'A' lends money to Co. 'B', who then lends it to Co. 'C', who then lends it to Mr sub-Prime in Detroit.
Co. 'A' may not even know that the money has been lent to Mr Sub-Prime in Detroit but when Mr Sub Prime loses his job at General Motors or Ford he is unable to repay the loan to Co. 'C' who then defaults on the loan with Co. 'B' who then defaults on the loan with Co. 'A'.
It obviously takes a lot of defaulting Mr Sub-Primes to cause problems worldwide but if you add in all the commercial loans for business startups and even established businesses that fail or a large financial institution that goes insolvent for one reason or another and pretty soon you have a very bad situation.

One of the terms that has also been coined in the financial market place to describe some borrowers is 'Ninja'.
No Income, No Job, No Assets. This would describe probably the highest risk group of the population.