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A person wondering how an IVA will affect their credit rating

How Will an IVA Affect my Credit Rating?

An Individual Voluntary Arrangement (IVA), much like most debt solutions, can, of course, have a negative effect on your credit rating. However, it is important that you keep your end goal in mind. An IVA is a legally binding debt solution that will clear your problem unsecured debts. An IVA will also stop your creditors and any debt collectors from chasing your outstanding debt.

Getting debt help and entering into an IVA shouldn’t be looked at as something to be ashamed of or as ‘another thing that will affect my credit rating’. Getting debt help is a long term plan to get you back on track and on the road to becoming financially free.

Credit Rating during an IVA

Most lenders will default your account as soon as you enter into an IVA, if they have not already done so. However, it is entirely at the lender’s discretion, although defaults cannot be registered after the IVA is approved.

An IVA will negatively impact your credit rating and your ability to get credit while it is on your credit report. You are likely to face difficulty obtaining further credit during this time, although it will be a condition of your IVA that you don’t get any further credit without the permission of your Supervisor. Most lenders will automatically decline your application if insolvency is present on your credit report, whether it has been discharged or not. These lenders can include credit cards, overdrafts, a payday loan, catalogue or store card. Credit that you are accepted for will likely have high-interest rates. 

If you wish to obtain more than £500 credit, you must get written permission from your Supervisor, unless it is for public utilities such as gas, electric and water, etc.

Details of your IVA are made public as it will be listed on the Individual Insolvency Register; therefore, the concept of debt will be no secret from any potential creditors.

Credit Score after Successfully Completing an IVA

Defaults that are registered by your creditors, usually at the outset of your IVA will stay on your credit file for six years. So, if your IVA proposal was to make payments over five years then the default will only stay on for a further 12 months after the IVA ends. The same is true even if the IVA fails or if you have completed the IVA early, it will still be present for 6 years from the day it was registered..

Details of your IVA will remain on the Insolvency Register for the duration of your IVA and will be removed three months after your IVA has come to an end. Debt Movement will request this is removed from the Insolvency Register when we issue your completion certificate.

Once you complete your IVA you will be issued your completion certificate following your final IVA payment and after all obligations have been completed. Your IVA provider will also contact your creditors to let them know the IVA has successfully been completed. It is then the creditors responsibility to update the relevant credit reference agencies, your Supervisor is not able to make any amendments to your credit file. 

Upon closure of your IVA, the completion certificate issued to you is proof that you have completed your IVA successfully and you should keep this in a safe place as you may need it in the future.

You can credit check yourself using the three leading credit reference agencies. These are:

These companies will provide you with your current credit report. It is probably best to wait a couple of months following the completion of your IVA to ensure that your creditors have updated their internal and external records, as this can take some time.

How to Improve Your Credit Score

It may be a good idea to start by checking exactly what is on your credit file, ensuring that all information is correct. You can check your credit rating on websites like Experian, Equifax and Call Credit and compare these all against each other. Ensure there is no adverse information dated after the beginning of your IVA, as there should not be any new information after this date.

How to Repair Your Credit Score

1) Build up your credit history — Having little or no credit can make it difficult for a company to assess you. A credit file is a record of how you use credit, such as when you’ve applied for it, whether you’ve paid it back and how much you currently have access to. Having nothing on your credit report means no credit rating.

2) Prove where you live — Register on the electoral roll. This is a good idea as lenders can verify who you are and make you appear more stable.

3) Open a bank account — Managing it shows companies you’re financially stable. If you have an overdraft, make sure to stay well below the limit and try to pay it off as quickly as possible.

4) Get a credit builder credit card — Your bank may be willing to give you a credit card if you have no credit/bad credit. Paying it off on time will help you to build positive credit and improve your credit rating. Be careful not to go overboard with this!

5) Get your name on utility bills — Utility bills such as your phone contract or your electric bill as these count as a form of credit. Paying these off and keeping up to date with monthly payments help to improve your credit rating.

6) Pay your bills on time — We are only human, and it is often easy to lose track of what payments are due when. To stay on track, it is a good idea to set up a direct debit with your bank for certain bills as this means the money is withdrawn and transferred to the lender on the same day of every month. You can relax, and your credit score is better for it. Another way to help pay your bills on time is by using a Budgeting App, which will allow you to easily keep track of what you have spent, and what you need set aside for certain bills.

The Rental Exchange

Experian have partnered up with Big Issue Invest to create The Rental Exchange to help tackle the challenges faced by rental tenants in the UK compared to homeowners. This project aims to incorporate a tenant’s payment history in their credit file, therefore considering rental payment data in the same way that mortgage payment data is taken into account. This will unlock a range of benefits for tenants by enhancing their credit rating given that payments are timely and for housing providers and credit providers. 

If this is something of interest to you, be sure to ask your landlord to report your rental payment data into the Rental Exchange.

Is an IVA Worth the Effect on My Credit?

As mentioned, an IVA will affect your credit rating negatively. The default registered on your credit file at the start of your IVA will stay on your file for six years. However, those in debt and in need of a debt solution such as an IVA are highly likely to already have a poor credit rating with little to no chance of improving this without intervention. The benefit of an IVA is that after the six years have passed and your IVA has been completed, you will be able to begin building your credit from scratch. Additionally, your creditors and debt collectors will be unable to contact you while in an IVA so you can focus on budgeting and meeting your single monthly IVA payment.

If you’d like to talk about debt problems, debt help, debt solutions or if you would like more information on whether an IVA is right for you — call Debt Movement today

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