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Will an IVA affect my credit score?
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Will an IVA affect my credit score?

Individual voluntary agreements are excellent solutions if you want to consolidate your debts into a lower payment plan. You’ll pay less each month but return the money over an extended period – which enables people to repay their debts but not be out of pocket.

While an IVA offers security and peace of mind, many people wonder if it will affect their credit score. In short, the answer is yes – it will. But an individual voluntary arrangement is designed to provide debt relief, and it’s more about weighing up the short term losses against long term gains.

If you’re asking yourself how does an IVA affect my credit rating, we have the answers.

Why Is a Credit Rating Important?

We live in a credit-driven society, and very few people can purchase essential items such as cars and houses outright. In most cases, people will be able to buy an item, with a loan company providing them with the outright funds.

Providing you stick to the agreement between you and the financing provider, other financial institutions will look upon your favourably. But if you fail to meet your repayment obligations, the interest rates will increase, and your credit score will fall.

Having a poor credit rating can cause a lot of problems, but they’re not usually long-term issues. Let’s take a look at them.

Loan Providers Might Turn You Away

In most situations, a loan provider will use your credit reference file to see if you’re a suitable candidate for financing. Whether it’s purchasing a car or home, if your history shows previous defaults on loan agreements, many will turn you away.

You’ll Get Worse Deals.

People with an excellent credit score receive better deals when financing their home, mortgage or anything else they need to secure with credit. If you have bad credit, you’ll have to find a specialist provider, which usually means you’ll pay hefty interest rates.

It Can Make Finding Somewhere to Live Difficult.

Even renting a property can prove to be difficult if you have poor credit. All letting agencies run checks to see whether you’re a viable candidate. Most will only offer a tenancy agreement if you pass the credit check or provide a guarantor who must take on financial responsibility if you don’t pay the rent.

Credit Enables You to Live Well

Most people rely on credit, so it’s essential to keep on top of your repayments. Failing to do so means you’ll struggle to purchase new items, take out a loan and some utilities companies might be unwilling to provide gas and electricity in advance and will offer you a prepayment metre.

How Badly Will an IVA Affect My Credit Rating?

It’s a question many people ask, and there’s no simple answer. As your credit rating tells financial institutions about your spending history, a poor score means there are fewer opportunities to obtain a mortgage, car financing, credit card and even a mobile phone contract.

Most people find they only get credit if they can prove they’re a reliable person, so not meeting your financial obligations will almost always result in a mark against you.

An individual voluntary arrangement (IVA) provides much-needed debt relief, so in most cases, if you begin an IVA plan, then you probably already have bad credit.

Yes, an IVA will affect your credit report, but it won’t be permanent. When you finish your IVA payments, you’ll be able to wipe the slate clean, so to speak, and rebuild your credit rating.

Without an IVA, you’ll have to continue to pay high-interest rates, and might not be able to relieve your debts, so the agreement offers a better long-term outlook for your viability as a candidate for loans or financing.

What Are the Advantages and Disadvantages of IVAs?

If you’re wondering whether an IVA is right for you, there are some vital points to consider. Let’s take a look at the pros and cons.

The Pros of IVAs

  • IVAs enables you to free yourself of debt within a few years, meaning you don’t have a weight on your shoulders.
  • An IVA provider will look at your finances and develop a payment plan that won’t put you out of pocket.
  • Once you reach an agreement, the interest on your unsecured debt is frozen, meaning you can make payments and gradually decrease your debt – regardless of the years from the date the agreement starts.
  • When the agreement comes into action, creditors will leave you alone. As long as you make regular payments, they won’t be able to take legal action. Creditors can be notoriously difficult to deal with, but when they agree to an IVA, you can relax and focus on your financial obligations.

The Cons of an IVA

  • An IVA depends on whether creditors accept the proposed arrangement. If they don’t, you won’t be able to benefit from extended payments. In most cases, creditors will agree because their primary goal is getting back the money.
  • The monthly payments aren’t an advisory; they’re your obligation. If you fail to keep your end of the agreement, it will become void, and the people you owe money to can take legal action.
  • Every IVA appears on the Individual Insolvency Register.
  • The IVA will impact your credit score and will be on file for six years.

Can you Pass a Credit Check with an IVA?

Will an IVA affect your credit rating? Absolutely. There’s no getting around it, but as we mentioned previously, an individual voluntary agreement is a last resort debt solution. As an IVA will appear on your credit history, you might struggle to purchase some items.

For example, it would be challenging to get a mortgage or finance a new car, but some credit reference agencies will enable you to obtain up to £500 of credit, which is good if you want to buy a new TV or mobile phone contract.

It’s important to mention that if you want more than £500 of credit, you’ll need written permission from the insolvency practitioners. The only loophole is if the credit is for essential utilities, such as gas, electricity and water.

The Individual Insolvency Register

Every time you apply for credit, the referencing company will access a public register called the individual insolvency register. Your IVA will be documented on the register and will continue to appear until you’ve paid off the agreed amount.

If a company wants to check your credit, they’ll be able to see the registration and might demand higher interest rates or even turn you away.

Ultimately, you may be able to get credit, but it’s up to the company running the checks. Some are more lenient than others, and while an IVA can make it difficult, the fact that you’re registered as repaying your loans might make the search slightly simpler.

Deciding Whether an Individual Voluntary Arrangement is Right For You

There are many things to consider when deciding whether an IVA is right for your needs, including that it’s a legally binding contract. Debt management services can provide you with short-term relief and an opportunity to relieve yourself of the stresses angry creditors often create.

When it comes to debt solutions, many look favourably on IVA’s because they build bridges between creditors and lenders. You might find it challenging to get credit, but in 6 years, you’ll be completely free of debt and could basically wipe the slate clean and start again.

So, in conclusion, an individual voluntary arrangement (IVA) can impact your credit rating, but it will provide you with a clear roadmap to financial freedom in the future.

Contact IVA Advice

If you’re looking for advice on securing an IVA, we can help you today. Our friendly team will discuss your options and look at potential repayment plans that offer convenience and security.

We’re authorised and regulated by the Financial Conduct Authority and registered in England. Our service guarantees you’ll get the best solutions for your situation, and all you have to do is tell us your details, and we can use our IVA calculator to work out the right repayment plan.

Please feel free to contact us at our registered office, or you can use our website to fill in your details, and we’ll get back to you ASAP.

Remember, debt doesn’t have to be a black cloud that follows you around and working with us means you have an opportunity to remove past mistakes from your credit file. Contact us for debt advice today. We look forward to hearing from you.