Effects Of An IVA On Credit Score

The individual voluntary arrangement or IVA is a debt solution and a form of insolvency that includes a payment plan that is reduced and paid over an extended period. People that are struggling to pay off their growing debt may find it to be a great solution, but if you intend to take out credit in the future, it could affect your chances adversely.

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Your Credit Ratings

Your financial footprint is your credit rating and is a detailed record of your previous dealings with payments and credits. It is designed to make it easier for all future lenders to properly gauge your ability to borrow money. All payments you made on time will improve your credit rating, while any missed payments for bills or loans will see a decrease in your credit score.

It is important to note that you’ll have a weaker credit score if you’ve never used any kind of credit when compared with having several credit cards and loans whose payments have not been missed. If you’re looking to use credit in the future, your credit rating is going to be vital. It will determine the terms of how good a credit card or loan you can take out and whether you can take one out at all.

If you get an IVA it will have a negative impact on your credit rating, but it will not be permanent. Chances are that if you require an IVA company, your credit rating isn’t going to be that great because of late or missed loan repayments. However, you can use an IVA for the long-term to improve your credit score, since it will let you pay off all your debts and make a new start.

Individual Insolvency Register

There will be a record placed with the public Individual Insolvency Register when you start your IVA. It will remain there until the end of the agreement. When you’re placed on the IIR your credit rating will take a hit, and that will mean that you won’t be able to obtain new credit throughout the course of your IVA. The same conditions will be applied if you declare bankruptcy.

Acquiring New Credit During IVA

When you set up an IVA, make sure you pick the best IVA company as you won’t be able to take out new credit throughout the terms of the agreement and after it finishes. However, some exceptions will be made for the following:

  • You can take out credit if it is meant for buying living essentials for your family.
  • You may also take out credit for your business if you are self-employed or own a company

However, your credit rating is going to be a lot worse throughout the IVA, which will mean that you will be charged higher interest rates if you take out credit. If you want to out credit that is more than £500 during your IVA, then your insolvency practitioner must give permission in writing.

Long Term Effects On Your Credit Rating

The IVA will be recorded on the IIR until it is finished and will remain on your credit file for more than 6 years after it was started. You should know that it will be harder for you to borrow money when your credit report has got IVA marked on it.

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