An Individual Voluntary Arrangement (IVA) is a debt solution which can help someone manage their debt problem.
If you are thinking of getting an IVA to consolidate your debts into affordable monthly payments, then it is important to look at how this will impact your personal as well as your financial life.
Getting an IVA can prove to be beneficial for a variety of reasons, however, people are reluctant to pursue this type of debt solution, because of how it could affect their credit rating.
An IVA can have a negative impact on your credit rating, however like any type of debt solution, sometimes the positives outweigh the negatives.
Read our guide as we explore how an IVA will affect your credit rating and whether an IVA is a right solution for you.
Will an IVA affect my credit rating?
There is no need to sugar coat this part as yes, an IVA will affect your credit rating. Details of your IVA will appear on your credit file for future creditors to take a look at.
Every creditor has its own credit approval process, so it is important to check to what extent an IVA could affect your future lending options.
Want to find out more about your credit rating? Read our guide about debt and your credit score guide.
How will an IVA affect my credit rating?
As an IVA is a legally binding debt solution which allows you to combine your unsecured debt into one affordable monthly payment.
If you enter into an IVA agreement, you are admitting that you have a debt problem and are using a debt solution to get you out of debt.
As much as this is a positive step in your debt rehabilitation, unfortunately, potential creditors will see you as a high-risk customer.
An IVA will stay on your credit file for six years, however, it is important to remain optimistic.
Can I get more credit whilst I am in an IVA?
Although potential lenders may see you as high risk when you enter an IVA, it doesn’t rule out all possibility of you getting credit whilst you are in an IVA.
There are a few things you should bear in mind when thinking about this:
The credit offered will be different before you entered an IVA
You might be able to obtain credit, but it won’t be similar to the way you did pre-IVA. Unfortunately, lenders will have the upper hand and there will be resistance for them to lend to you.
If lenders do, then they will offer you low credit limits and higher interest rates.
Credit applications need your Insolvency Practitioner’s approval
Credit applications over £500 will need your IP’s approval. Your IP will then decide whether you can make the application and whether it is the right path to pursue.
Insolvency practitioners can often feel reluctant to authorise additional credit as their job is to help you pay back your creditors and not land you in more debt. Applying for extra credit could deter you from doing this.
Transparency with your insolvency practitioner is very important.
Find out what happens when you hide money from an IVA.
You may get rejected for renting or moving home
If you plan to move home or rent out a home, it is likely your landlord or letting agent will do a credit check to see whether you will be able to pay them.
However, as landlords and letting agents make human decisions, it could be possible that they might use their discretion to allow you to rent from them if you explain your situation.
Only apply for credit if you know you will get approved
When you make a credit application, a creditor will do a credit check on your file.
Remember to be wary when making credit applications. Only apply for credit on the applications you a certain will be accepted.
One way to do this is by simply calling the potential creditor up and asking them about their eligibility criteria. Or take a look at their website for more information on this.
If you continuously have your credit rejected, this lowers your credit score.
How long does an IVA stay on my credit file?
An IVA will stay on your credit file for 6 years.
Every lender’s credit scoring is different. Some lenders may see you as a risk more than others.
If you are worried about being rejected on an application, then get in touch with the prospective lender and find out whether you meet the eligibility criteria.
They may offer you some leeway in your application if you have shown you are trying hard to get out of debt.
Can I ask to remove my IVA from my credit report?
When your IVA completes, the mark on your credit rating will automatically be removed after six years. On your credit rating, this should show as complete.
However, six years is a long time to have the IVA showing on your account, especially if you are looking to apply for more credit.
If you feel there is a valid reason for you taking out an IVA, for example, you got into debt because of a long-term illness, then you can speak to the credit reference agency to add a note on your report to explain the reason why you are in an IVA. You may need to provide evidence to support this but it is worthwhile trying.
How can I improve my credit score after my IVA is complete?
Improvements to your credit score will take time. Whilst you are in an IVA, your credit score will still be low, however, after six years, your credit score will improve.
This is when you try and build up your credit score.
Often, to have a good credit rating you need to show lenders that you can take out credit and keep to the agreement. However, after coming out of an IVA, you don’t want to fall back into the trap of borrowing too much.
Here are a few tips to follow:
- Take credit out of credit in small amounts so you know that your income will allow you to pay back the debt.
- Always use within your agreed limits and keep a check on what you are spending.
- Never use more than 50% of your total available credit.
- Ensure you pay all your balances in full and never fall into the trap of paying the minimum amount. The interest charges will rack up and make it harder for you to take control of your debt situation.
Find out more ways to improve your credit score.
Does an IVA affect my partner’s credit rating?
If your partner has joint financial accounts, then your IVA would influence your partner’s credit history as well.
If you are financially associated with your partner, then any joint accounts, loans, or mortgages, will show up on both your credit reports. Any defaults or missed payments on these joint accounts will be marked negatively on both your credit scores.
Before taking out an IVA it is important to discuss it with your partner and assess the impact it will have on their credit score.
However, your partner could apply for a Notice of Disassociation, which would stop their finances from being linked to yours so they would not bear the negative impact of your IVA.
Find out more about Joint IVAs.
Should I get an IVA?
An IVA is a good solution if you want to consolidate your debts into one affordable monthly payment. It isn’t a decision which should be taken lightly, especially as it will impact your credit score for six years.
It is important to get the right support and advice regarding this. Take a look at our debt plan pages to find out more about IVAs and whether an alternative solution is better suited to your needs.