Why An IVA Affects Your Credit Rating

An IVA is a formal insolvency procedure (in some ways quite similar to bankruptcy) which exists to assist those that cannot afford to repay their unsecured debt commitments. If you proceed with an individual voluntary arrangement the credit reference agencies (Experian, Equifax, Callcredit) will update your credit file with the details. Recording an IVA on your credit file will have a substantial impact on your credit rating now and in future years.

If you are thinking about starting an IVA and are in arrears to your creditors already your credit rating will almost certainly already be in decline. “Late payments” and/or “missed payments” are likely to be showing on your credit file causing deterioration in your credit standing.

It’s also not unusual for someone beginning an individual voluntary arrangement to be entirely up to date with their creditors. Generally speaking, once you commit to going ahead with an IVA, you’ll be advised by your IVA firm to cease making payments to your own creditors yourself. In the run-up to the IVA “creditors meeting” this may result in your credit file being marked with “late payments” and “missed payments”.

If you have been behind on debt repayments for some time it’s possible that you will already have been issued with “default notices”. Default notices document the fact that you have not met the contractual debt repayment terms you signed up to. If you go ahead with an IVA, lenders that haven’t issued default notices are likely to do so with subsequent implications for your credit rating.

What Happens When An Individual Voluntary Arrangement Has Begun?

An individual voluntary arrangement means that your unsecured creditors who are included in the IVA cannot take legal action against you. Legal actions also affect peoples’ credit ratings, so in this area an IVA (which itself will affect your credit rating seriously) can prevent other legal events that could have had a further effect on your credit rating.

If a report is made to your credit file it remains there for six years. By going ahead with an IVA, which generally lasts for five years (sometimes six years for homeowners), you will need to accept that your credit rating will be seriously affected for six years. Rebuilding work will be necessary after your IVA finishes (if you wish to restore access to affordable credit again in the future).

Default notices issued by lenders around the time of starting your IVA (or before) also stay there for six years. If a lender issued a default notice weeks, months or years after your IVA began you may wish to contact them to ask them to backdate it so that the effect on your credit rating is not unduly extended. Once you have been discharged from an IVA the lenders should mark default notices on your credit file as being either “partially satisfied” or “satisfied”. This will be helpful if trying to rebuild your credit rating after discharge from an individual voluntary arrangement.

While actually in the term of your IVA there are likely to be rules restricting you from accessing any, or any significant amount of, new credit. Don’t be tempted to bypass your credit rating by going to a rip-off doorstep lender or payday loan company as this will likely get you into serious credit trouble again.

Financial emergencies during an IVA are best dealt-with by speaking with your contact at the IVA firm. If there is a good reason for your financial need they may be prepared to accept a temporary IVA payment reduction or holiday so that you can deal with the problem.

Once your individual voluntary arrangement is finished you have the option to start rebuilding your credit rating. For those that wish to restore access to conventional affordable lending sources this will be a worthwhile task. In time this should be perfectly achievable provided that some work is done and financial discipline is retained.

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