The Impact of an IVA on Your Credit Rating

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay your debts over a fixed and agreed upon period of time. It can be an effective way to manage your debt and avoid bankruptcy as it can help reduce the amount you owe (interest rates and charges are usually frozen) and allow you to spread the payments out over a longer period. Moreover, it is approved by the court and so your creditors will have to stick to it.

Sounds pretty good, right? One downside of an IVA, however, is that it can affect your credit rating. This means that your credit score may go down and it may be harder to get approved for loans or credit cards. How badly an IVA affects your credit rating depends on a few factors, such as how much debt you have and how well you stick to the repayment plan.

How Long Does an IVA Stay on Your Credit File For? 

An IVA will stay on your credit file for six years from the date the agreement is made. It’s worth noting that when you start an IVA, a record of it will also be placed on the public Individual Insolvency Register (IIR) and will stay there until the agreement is finished. Being on the IIR will adversely affect your credit rating, and thus your ability to acquire credit. 

How Badly Will an IVA Affect My Credit Rating?

Whilst being on the IIR will affect your credit rating in the short term, as long as you continue to make your repayments on time, your credit rating will gradually improve. In other words, getting an IVA does not mean that your credit rating will be bad for six years, but it will mean that it may be harder and/or more expensive for you to borrow money.

For example, if you have an IVA and you later apply for a mortgage, you may not be approved or you may be offered a higher interest rate. Alternatively, if you have an IVA and you later apply for a credit card, you may be approved but you may be offered a lower limit.

Remember, whilst having an IVA on your credit file can make it harder to get credit, it doesn’t mean you won’t be able to get credit at all. An IVA is just one factor that lenders look at when assessing someone’s creditworthiness. There are a number of lenders who will consider applications from IVA holders, as long as your credit score may still be high enough to get approved.

It’s also worth bearing in mind that an IVA is not the same as bankruptcy. Bankruptcy is a much more serious option, and it will have a far more negative impact on your credit rating. An IVA is a way of dealing with your debt problems without having to go bankrupt.

Nonetheless, if you’re thinking about applying for an IVA, it’s important to understand how it could affect your credit rating. This can help you make a decision that’s right for you and your financial situation.

Seek Expert Advice

If you are worried about debt, bankruptcy or possible insolvency, contact Asset Solutions today on 0800 689 3861. Our experienced team members provide unrivalled assistance to individuals throughout the entire insolvency process and help to stop bankruptcy.

We understand that anyone facing problem debt is likely to feel overwhelmed and intimidated. That’s why we’re here to support you throughout the process and help you achieve the best results possible for your situation. Contact us today for more information.