An Individual Voluntary Arrangement (IVA) can be a positive way to manage problem debts that are spiralling out of control.
If you live in England, Northern Ireland or Wales and are struggling to pay at least £5,000 to two or more creditors then this debt solution could be the best option for you.
Naturally, when people search for a debt solution tailored to their needs the first thing they often think about is their credit rating.
It’s important to note that all debt help solutions available will have an impact in some way on your credit rating, but that shouldn’t put you off finding support.
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How will an IVA affect my credit rating?
There is no escaping the fact that an IVA will affect your credit rating.
An IVA is a legally binding debt solution that uses government legislation to consolidate your payments into one affordable monthly amount and write off up to 81% of unsecured debt.
However, as you will be declared as insolvent your Individual Voluntary Arrangement will be recorded on your credit report where it will stay for six years.
Understandably this will have an impact on your score which will go down as a result and can make
it more difficult to secure credit in the future.
By entering into an IVA you are admitting that you are struggling to repay past or current debts and despite entering the arrangement being a positive step to dealing with what you owe, future creditors may view you as a high-risk customer.
This means that in future you may face higher interest rates or be rejected for credit such as loans or credit cards.
However, despite having a negative impact on your credit score it’s important to keep in mind the positive aspects of an IVA.
If you are considering a debt help solution you are probably already struggling to pay what you owe and if you default on payments due, this will affect your credit rating.
An Individual Voluntary Arrangement can offer a fresh start. Although your credit rating will be impacted for six years, once your arrangement is complete you can begin working to build your credit again.
How do I understand my credit report?
Understanding your credit report might seem daunting but it doesn’t need to be.
The scales you see will depend on the agency you use, however, the most important thing to remember is that no matter how the score is presented seeing it increase is the ultimate goal.
Put simply, the higher the score the better access you’ll have to credit deals and the lower the score the harder it will be to apply for credit.
When you borrow money, or when you enter any of the available debt solutions, details of the arrangement will be entered on your credit reference file. This will include how much you’ve borrowed, any payments you’ve missed and if you pay for any bills such credit such as a mobile phone.
Your IVA will be registered on your file for six years from the date it is approved by the insolvency practitioner.
When you start your IVA you should check the defaults listed on your report to make sure they weren’t registered after your IVA started, if they are, contact your creditors to have the credit reference file updated.
How long will an IVA stay on my credit report?
Your IVA will appear on credit report from the date it is approved and will stay there for six years.
If you finish your agreement early, for example if you receive a windfall or inheritance that will clear the debts included in the proposal, your IVA will still remain on your file but marked as ‘complete’.
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Can you pass a credit check with an IVA?
As an IVA can impact your credit rating it can cause problems obtaining credit in the future. It is worth keeping this in mind if you plan to move or rent a house or other property through a letting agent during the term.
You may still be able to get some types of credit during the agreement – typically with low credit limits and high interest rates. It’s worth remembering that applications for credit over £500 need to be approved by the insolvency practitioner (IP) managing your arrangement.
You should also keep in mind that every application for credit will impact your score so should only apply for credit you really need or are likely to be approved for.
How can I remove or update an IVA on my credit report?
Your proposal will appear on your credit report from the day that it is approved and will remain there for six years.
During this time you don’t need to do anything and when your IVA comes to an end it will automatically be marked as ‘complete’.
If you are worried your credit report is incorrect in the future, you can ask for this to be amended but may be required to send proof of your IVA completion certificate or a letter from your IP.
It is also possible to add details of the reason behind your insolvency to your credit report. According to Experian, you can ask the company to add a note on your report which explains your circumstances such as redundancy or long-term illness.
How long after an IVA can I get credit?
As mentioned previously, you can try to obtain credit during the term of your agreement, but this is subject to approval by your IP.
Your IVA, and credit rating, will restrict your borrowing power for six years and as such it will make it tricky to access the best deals.
However, after your agreement comes to an end you can begin sensibly rebuilding your score by accessing small amounts of credit.
How can improve my credit score after my IVA?
When you complete your IVA your credit score will still be low. Although this may seem frustrating, especially as you will have made every payment required towards your agreement you can still take steps to improve it.
After six years in your IVA, your borrowing powers will slowly increase and despite seeming daunting the best way to improve your chances of increasing your score and accessing the best rates is to borrow.
You should keep an eye on your credit score using a reputable company and take small steps to improve your score.
It’s important at this point not to undo all the hard work that you’ve put in – after all you don’t want to lose control of what you owe again. If you are considering taking out credit of any kind, whether a credit card, loan or even a phone contract, the most important thing is to be realistic.
You should only take out small amounts of credit you know comfortably fits within your budget and you won’t miss any payments. You should never use more than 50% of your total available credit and make sure you stay within your agreed limits.
Most importantly, you should pay any balances in full each month to avoid interest building up.
Is getting an IVA a good idea?
If you’re unable to repay the unsecured debt you owe and find yourself reaching for your credit card
or payday loans to cover the cost of day-to-day essentials, then an IVA could help.
A legally binding debt solution, an IVA uses government legislation to consolidate your unsecured
debts into one affordable monthly payment – from as little as £85.
The legislation also prevents creditors taking any further action against you and stops pressure to pay what you can’t afford.
What’s more, it could help you by writing off up to 81% of unsecured debt you can’t afford.
It’s important when considering any debt help solution to seek expert authorised and regulated debt advice.
You could write off up to 81% of your unsecured debt today