Does IVA affect credit rating

Does IVA affect credit rating?

This page was last updated on 1 April 2021

Does IVA affect credit rating?

This guide tells you the most important information you need to know about an individual voluntary arrangement (IVA). 

It goes into detail about how your credit rating can be affected by an IVA, and answers a range of other commonly asked questions such as:

  • What is an IVA? 
  • How does an IVA impact your life?
  • How do IVAs last on your credit record?
  • What is the I V A register?

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

What are IVAs?

An individual voluntary arrangement (IVA) is basically an agreement that you make with an insolvency practitioners association. It is a way of avoiding bankruptcy.

In this debt solution, you consent to making regular payments to an insolvency practitioner (IP). They then divide your money between the creditors after taking a small payment handling fee. 

According to UK law, if you have an IVA your creditors won’t be allowed to collect your debts by taking legal action against you. This is one of the key differences and bonuses compared to a debt management plan (DMP). DMPs do not have a legally binding status because they are an informal agreement. 

How is IVA payment rate worked out?

To work out the level of money that you need to pay each month, the insolvency practitioners will examine information about:

  • Income and savings
  • Debts 
  • Creditors
  • Assets and property

This will tell them how much you can afford to pay and they will create a budget. Once you have signed the form and given written acceptance of the terms and conditions, you will need to keep up with the rate of repayments or you may be declared bankrupt. 

All insolvency practitioners must be a registered office that has been authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority is the industry watchdog, and has the ability to set protections for IVA clients.

You can read government debt advice about how an IVA works here

How long will an IVA affect my credit rating?

An IVA won’t affect your credit score forever. It will normally only be kept on your credit file for six years in total. 

This is because an individual voluntary arrangement usually lasts for five years, and after it ends it will remain on record for one more year.

The IVA will appear on your credit report. This is held by the UK’s three credit reference agencies:

  • Experian
  • TransUnion
  • Equifax 

Your credit rating will be made poorer as a result. You may therefore struggle to borrow money during this period.

Six years is a significant amount of time, but it’s important to remember that without debt help, you would have carried on struggling financially. In those circumstances your credit score may have worsened anyway.

Plus, if you are able to make a lump sum payment then your IVA may end before the five year term is over. 

How does an IVA affect your life?

An IVA can have a big impact on your life and is not an option to be taken lightly. 

Details of your agreement will be listed on the IVA register, which is part of the public record individual insolvency register. Any service provider who runs a credit check on you can see that you have run into financial difficulty by looking at the register of IVA. 

Your credit rating will be lower as a result, and the IVA will appear on your credit file for around six years.

Credit providers are not just mortgage or insurance companies. They may be a bank, a credit card provider, a mobile phone provider, or a landlord, for example.

As such, choosing IVA debt solutions can cause you to have a tricky experience accessing services and loans in the future. You may have higher interest rates or need to pay larger security deposits when renting. 

Experts advise that you don’t just apply for lots of credit at once because you are worried you won’t be approved. Each application will be listed on your credit reports for a year, and potentially worsens your score.

You can speak to a financial adviser if you want to learn more about the best options for getting your debts under control. The adviser can answer any question you have about how an IVA will change your life, and can give you tips on managing money, credit accounts, and debts.

What happens with missed payments IVA?

Let your insolvency practitioner know immediately if you know that you are going to miss payments to the creditor. Otherwise, your IVA will be breached and your arrangement could be terminated.

When you breach your IVA, you are given one month to take steps to catch up on the payments you owe to the creditor. 

However, if you have an emergency, the insolvency service may give you a short payment break under the terms of your agreement. It might also be possible to slightly change the rate of your monthly payments if you are having difficulty meeting these financial obligations. 

You should speak to your insolvency practitioner to explain your situation. They will be able to explain more about the consequences of missing payments and may be able to support you in slightly adapting the payment plan.

Will an IVA affect me getting a mortgage?

Maybe. An IVA is recorded on your credit file for six years. During that time, you may struggle to get mortgages.

Upon completion, the IVA will no longer appear in your credit reference file and so your credit rating will improve. 

Can you take out mortgages with an active IVA?

In some cases it will be possible for you to get a mortgage when you have an active IVA.

But it will probably be more difficult to be approved for a mortgage because an IVA will negatively affect your credit rating throughout its 6 years duration. Lenders use credit scores as a guide to determine the risk involved with giving you credit. 

The lender will want to make sure that you are in a stable position before lending you money. If you are borrowing from them, they want to be certain that you will make your repayments on time and not fall into more debt.

That being said, a mortgage provider may also consider your recent credit history when deciding whether or not to approve the mortgage loan. 

For example, if you have two years of good credit activity where you have paid each IVA contribution on time, and kept up with utilities bills, fines, and credit cards fees, then the lender can use this knowledge to conclude that you are actively trying to get your debt problem under control. 

If you demonstrate that you are making changes to get back on track and be financially responsible, they may make an exception and grant you a mortgage.

what are ivas

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Frequently Asked Questions

What is an IVA?

An individual voluntary arrangement (IVA) is basically an agreement that you make with an insolvency practitioners association. It is a way of avoiding bankruptcy.

In this debt solution, you consent to making regular payments to an insolvency practitioner (IP). They then divide your money between the creditors after taking a small payment handling fee.

How long will an IVA affect my credit rating?

An IVA won’t affect your credit score forever. It will normally only be kept on your credit file for six years in total.

This is because an individual voluntary arrangement usually lasts for five years, and after it ends it will remain on record for one more year.

How does an IVA affect your life?

An IVA can have a big impact on your life and is not an option to be taken lightly.

Details of your agreement will be listed on the IVA register, which is part of the public record individual insolvency register. Any service provider who runs a credit check on you can see that you have run into financial difficulty by looking at the register of IVA.

Your credit rating will be lower as a result, and the IVA will appear on your credit file for around six years.

Will an IVA affect me getting a mortgage?

Maybe. An IVA is recorded on your credit file for six years. During that time, you may struggle to get mortgages.

Upon completion, the IVA will no longer appear in your credit reference file and so your credit rating will improve.

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