When problem debts spiral out of control, Individual Voluntary Arrangements (IVAs) can help.
This debt solution may be the best choice for people in England, Northern Ireland or Wales who are having difficulty paying two or more creditors at least £5,000 per month.
It is natural for people to think about their credit rating when looking for a debt solution tailored to their needs.
The credit rating will be affected by all debt help options available, but this shouldn’t stop you from seeking help.
Is an IVA going to affect my credit rating?
An IVA will affect your credit rating.
You can write off up to 81% of unsecured debt by using an Individual Voluntary Arrangement (IVA), which is a legally binding debt solution that uses government legislation.
In spite of this, your Individual Voluntary Arrangement will remain on your credit report for six years once you are declared insolvent.
This will inevitably have an effect on your credit score, which will go down and make it harder to secure credit in the future.
A personal insolvency arrangement occurs when you admit you cannot repay past or current debts, and while it is a positive step towards settling your debts, future creditors may view you negatively.
Credit cards and loans may be rejected or your interest rates may rise in the future.
While an IVA can negatively affect your credit score, there are several positive aspects to consider.
You are probably struggling to pay your bills and your credit rating will suffer if you default on payments due. If you are considering a debt help solution, you must already be struggling to pay what you owe.
It is possible to start over with an Individual Voluntary Arrangement. Once your arrangement is complete, you can begin working on rebuilding your credit once your credit rating is unaffected for six years.
What is a credit report, and how can I understand it?
Credit reports aren’t difficult to understand, but they can be confusing.
No matter how the score is presented, the ultimate goal is to see it increase, no matter what agency you use.
If your credit score is low, you’ll have a hard time getting a credit offer. If your score is high, you’ll have better access to credit offers.
Your credit reference file will contain details of any debt arrangement you enter, whether it is a loan or a debt solution. In addition to borrowing amounts, if you’ve missed payments, and if you’ve paid any bills like mobile phone credit, this will be included.
From the date your IVA is approved by the insolvency practitioner, it will remain on your file for six years.
You need to check the defaults listed on your credit report when you start your IVA to make sure they have not been registered since the IVA started. If they have, get in touch with your creditors to update the credit reference file.
What is the length of time an IVA will remain on my credit report?
From the date your IVA is approved, it will remain on your credit report for six years.
The IVA will still appear on your file, but will be marked as ‘complete’ if you complete your agreement early, such as if you receive a windfall or inheritance that will erase your debts.
How does an IVA affect your credit score?
In the future, you may have difficulty obtaining credit if you have an IVA because it can impact your credit rating. In case you are moving or planning to rent a house or other property through a letting agent during the term, you should keep this in mind.
Some types of credit may be available to you during the agreement, but they tend to come with low credit limits and high-interest rates. Your insolvency practitioner (IP) must approve credit applications over £500.
Likewise, you should only apply for credit that you need or are likely to be approved for since every application will affect your score.
What can I do if my credit report shows an IVA?
The credit report entry on your credit history will appear from the day it is approved and remain there for six years.
Your IVA will automatically become complete once it reaches its end, so you don’t need to do anything during this time period.
Your credit report can be amended if you are concerned that it will contain incorrect information in the future, but you may be required to send proof of the completion of your IVA or a letter from your IP.
Your credit report can also include information about the reason for your insolvency. It is possible to ask Experian to add a note explaining your circumstances, such as being laid off or being ill for a long time, to your credit report.
Is it possible to get credit after an IVA?
Your IP may approve your credit application during the term of your agreement, as mentioned previously.
For six years, your IVA, along with your credit rating, will limit your borrowing power, making it difficult for you to access the best deals.
By accessing small amounts of credit after your agreement ends, you can begin rebuilding your score sensibly.
After my IVA, how can I improve my credit score?
You will still have a low credit score after completing your IVA. It may feel frustrating at times, especially since you have paid every payment required towards your agreement, but there are still things you can do to make it better.
In six years, your borrowing power will gradually increase and despite seeming overwhelming, borrowing is the most effective way to improve your credit score and get the best rates.
Make small improvements to your credit score by monitoring your credit score with a reputable company.
Keeping track of what you owe is crucial at this point – the last thing you want is to lose control over what you owe. Being realistic is crucial if you plan to take out credit of any kind, whether it’s a credit card, loan or phone contract.
If you want to take out credit, you should only do so in small amounts that fit comfortably into your budget and that you won’t have trouble paying back. Stay within the limits of your credit agreement and avoid using more than 50% of your total available credit.
In order to avoid paying interest on any balances, you should pay them in full each month.
What are the advantages of getting an IVA?
- You might find yourself reaching for your credit card if you can’t repay your unsecured debt.
- You might be able to benefit from an IVA if you’re having trouble making ends meet or taking out payday loans for essentials.
- Using government legislation to consolidate your unsecured debts, an IVA is a legally binding debt solution
- From as little as £85 a month, you can consolidate all your debts into one affordable monthly payment.
- You will also be protected from further action by creditors, and you will no longer be forced to pay what you cannot afford.
- Moreover, it may write off up to 81% of your unaffordable unsecured debt.
- A regulated and authorised debt advisor is essential when considering any debt help solution.