How does an IVA affect your credit rating?

One of the most regularly question is how will an IVA affect my credit rating?

Whilst someone looking at an IVA should not be looking for credit again in the short term, as they clearly cannot afford to pay the current debts, it is wholly appropriate to consider how the future will be affected once they are debt free.

Once an IVA is approved the IP (who is now the Supervisor) informs the Insolvency Service so that it can be entered on the Personal Insolvency Register. It is at this time that the Credit Agency will be notified and the IVA placed on your credit file.

How long is the IVA on the credit file?

The IVA will remain on the register for 6 years from the date the IVA is approved. This is even if your IVA finishes early, by failure or completion. As most IVAs are 5 years, it means that the IVA will be on the register for 1 year after you have competed it. However, you will have a Certificate of Completion to demonstrate that you have successfully completed the IVA.

How does the IVA affect your credit?

If you are looking into an IVA it is likely that you have missed payments already, and so you already have adverse entries on your file. If this is the case, then the IVA may not be much worse than the current situation.

If you apply for credit whilst the IVA is still on the register, creditors may not look favourably on the application, even if the IVA has completed. If creditors do agree to give you credit they may apply greater interest rates.

The main area credit that causes the greatest is future mortgages. As with other credit mortgage lenders may, if they are willing to provide a loan, charge a greater interest rate. Additionally, mortgage lenders may ask, in the loan document, if you have ever been bankrupt, insolvent or made an arrangement with your creditors. If they ask this question, even after the IVA has been removed from your file, you need to disclose all facts. However, if you successfully completed your IVA you can supply proof of this.

A successful IVA should, however, be looked on more favourably than bankruptcy as ou have taken positive steps to live by a budget and pay what you can to creditors to minimise their loss. This is not guaranteed so you should discuss this matter with a mortgage broker or your Insolvency Practitioner before making any final decisions on an IVA.

When will the IVA be removed?

This should happen automatically after the 6 years. If this does not happen you will have to contact the Credit Register Agencies, and possibly even the creditors concerned, to remedy the error in the register.