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How an IVA Affects Your Credit Rating 

 March 6, 2022

By  admin

An IVA, which is short for Individual Voluntary Arrangement, is a legally binding and formal agreement between yourself and your creditors to pay your debts back over a specified time period. This is set up by an IP - insolvency practitioner. 

While there are a number of benefits that are associated with entering into an IVA, you do need to make sure that you fully understand the costs associated with this and the impact this could have on your credit rating. 

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Will creditors know about your IVA?

Your IVA details will be kept on the Individual Insolvency Register, which is a public register. Information about your IVA will remain on this register for the length of the IVA, however, once your IVA has ended, the information will be removed from the three months after it has ended. When you make an application for credit, the creditor may check this register. 

IVA details will also be stored on your credit reference file by the credit reference agencies.  The credit reference agencies use Individual Insolvency Register to automatically update their records.  Before any company or individual agrees to lend to you, they will check your credit rating on your credit reference file, so do keep this in mind. 

Will your credit score go down if you take out an IVA?

If you enter into an IVA, it is going to be displayed on your credit report. As a consequence, your credit score will be negatively impacted, as your score is based on the details on your report. Naturally, a lower score will make it a challenge for you to borrow money. 

Whenever you make an application for credit, be it a mortgage, credit card, or loan, the lender will utilise your credit details to help them figure out how likely you are going to be to pay the money back. If you have an IVA on your credit report, it shows that you have run into trouble when repaying debt in the past, and so the lender may view you as being high-risk. As a consequence, they may either refuse to offer you any sort of credit or they will charge you a higher interest rate. 

Getting credit with an IVA

You will find it a challenge to secure credit in the short term if you have an IVA. However, it may still be possible to get credit for personal services and household goods, such as insurance policies or mobile phone contracts. If you own your own limited company, you could be able to get credit for business services and goods through the limited company. Nevertheless, you may be charged increased interest rates, and therefore, you should carefully consider any additional borrowing through your company. 

If you do want to secure over £500 worth of credit, you will need your IP to provide you with written permission. The only exception to this is when the credit is for public utilities, for example, electricity, gas, or water. 

Long-term implications on your credit file

Not only do you need to consider the short-term effect of an IVA but you also need to think about the long-term implications as well. After you have completed the IVA, your details are going to be removed from the Individual Insolvency Register once three months have passed. Your IVA details will be held on your credit file for six years from the start date of the IVA. After 6 years, the IVA details will be removed from your credit report.

Is an IVA the right move for you?

Hopefully, you now have a better understanding of what an IVA is and how it could impact your credit score. If you are unsure whether or not an IVA is going to be the right move for you and you would like further information, the best thing to do is get in touch with our team for more information and we will be happy to assist you in any way we can. 

It is possible to update or remove an IVA from my credit report?

The IVA should be added to your credit file automatically, then marked as complete, and finally removed, without you needing to do anything at all. Nevertheless, if you think that the record on your credit file is incorrect, the best thing to do is get in touch with the credit reference agency and ask them to update it. You may need to supply some form of evidence, for example, a letter from your IP confirming the closure of the IVA.

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Speak with Our Team of Debt Consultants.

Do you have questions or would you like more advice?

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