It will be no surprise to learn that an IVA will have a negative impact on your credit score. That said, the fact that you have been forced into applying for an IVA means that you are likely to have missed repayments and already begun to see deterioration in your credit score. In practice, there are long-term benefits in securing and completing an IVA which we will cover below.
Adhering to contractual repayments
In simple terms, each time you don’t meet a contractual repayment this creates an adverse action on your credit file. So, if you are in a situation where you are unable to fulfil your financial obligations then it is imperative that you seek some form of debt management arrangement. It is worth noting that any formal debt management arrangement would be noted on your credit file, adversely impacting your credit score. When all said and done, defaulting on a financial liability does not give confidence to other lenders going forward.
How long will an IVA stay on your credit file?
While a standard IVA will last for five years this can be reduced or extended depending upon the individual’s circumstances. When it comes to your credit file, an IVA will remain on file for a minimum period of six years from the day the IVA began. In the event that an IVA is extended to more than six years, this will remain on your credit file until completion. In the event that an IVA is completed early, the IVA will be marked as “complete” on your credit file but remain for a minimum of six years from inception.
Obtaining credit during an IVA
In some circumstances it may be possible to obtain credit during your IVA but the rates and terms may be detrimental. If you were to require in excess of £500 in credit then you would need the written authority of the insolvency practitioner managing your IVA. It is worth noting that every day expenses such as mobile phones, broadband and other common services are in effect credit agreements. You are committing to pay a set rate for a particular service/product for a predefined period of time. In reality, even during your IVA, assuming that you have managed to pay for example your mobile phone bill then you are unlikely to see any change in the service – or cost.
Rebuilding your credit score
As soon as reference to an IVA has been removed from your credit file you can then set about rebuilding your credit score. In the early days your score will be relatively low and you may find it difficult to secure credit or if so, it may involve relatively high interest rates and uncompetitive terms. Assuming that you’re able to fulfil future financial liabilities and no repayments are missed then your credit score will slowly begin to rise. It will take time, it may well be frustrating but the fact that your debts were effectively cleared once the IVA ended means that you can start again.
For many people the application for an IVA is the point at which they can begin to put all of their financial difficulties behind them and look to the future. An IVA will go down as an adverse action on your credit file but the likelihood is you will already have missed numerous payments and seen your situation deteriorating by the day. Once an IVA has been completely removed from your credit file you can then start to rebuild your credit score.