How will an IVA affect my credit rating?

If you take on an IVA or Individual Voluntary Arrangement to resolve your debt problems, your credit rating will undoubtedly be adversely affected. This is a major concern amongst debtors who are considering entering into an IVA.

However, this option is the lesser of two evils as your credit rating will be much worse if your mounting debts spiral out of control and you finally go bankrupt.

If you have to choose between entering an IVA or going bankrupt, opt for the IVA even though this will have negative consequences on your credit rating. However, only do this if you can stay within a tight budget and you can afford to make the repayments required of you.

The stigma of bankruptcy remains on your records for a long period of time. However, with an IVA, your credit rating will be repaired and back to normal after you have successfully completed your series of repayments.

In short, an IVA will affect your credit rating for a few years but fortunately, not forever.

How is your credit rating repaired?

Taking on an IVA can in fact help your credit rating in the long term. If you have not been able to pay off your debts for a long time, it is likely that some or even all your creditors will eventually take legal action against you in court by applying for a CCJ or County Court Judgement. Generally, a CCJ against you will remain on your credit records for approximately 6 years and is highly damaging to your credit rating and can cause permanent damage.

However, if you enter into an IVA, your creditors cannot apply for a CCJ or take any form of action against you your IVA stops all action from your creditors.

The majority of debtors who take on an Individual Voluntary Arrangement usually successfully complete them in a period of about 5 years. One of the main conditions of taking on an IVA is that you are not allowed to apply for any type of unsecured loans until you have completed the series of repayments set out in your IVA. While this is happening, your personal credit score is irrelevant as credit ratings are only checked when there is a loan application being made.

As soon as you have successfully completed your IVA, you will be given a Certificate of Completion by the insolvency practitioner who is managing your debts. This indicates that you now have a clean bill of financial health. Copies of this important Certificate of Completion can be immediately sent out to the various credit reference agencies who will update your record accordingly to show that your debt problems have now been resolved or satisfied. In most cases, this takes up to 5 years after the initial IVA judgement. After this period, your credit rating is repaired and you are free to apply for credit and loans once again.

Once you have successfully completed your IVA, you can start rebuilding a positive credit rating.