Will An IVA Affect My Credit Rating?

Trying to live in a world surrounded by credit isn’t easy if you have problems with your credit rating. Even the simplest mobile phone contract may require a credit check, so it’s no wonder that many people feel they have to keep up their credit rating at all costs and avoid things that could damage it. This is one of the most common reasons people cite for being concerned about IVAs, yet most of the time their credit rating has already been and is continuing to be damaged while they’re trying to keep their heads above water and deal with their unmanageable debts.

 

Positive and negative impacts of your credit rating

The truth is debt in all of its forms has an impact on our credit rating, both in a positive and negative way. A positive impact is one where we are showing we can live within our means and make the credit payments we need to on time every month. This might be for example ensuring the payment for our mobile phone contract, credit card or loan payment reach the lenders in time every month. A negative impact would be forgetting to make the payments on time and incurring late payment fees, or not having enough money in our account to cover a direct debit causing it to bounce. The presence of a payday loan for example is enough for some lenders to issue an automatic rejection, as they are now considered a classic sign of financial trouble.

 

While the odd problem does happen to everyone occasionally, such as when changing current accounts or an emergency crops up and you cannot get to a bank to make a payment, it is when it starts to happen more frequently and forms a pattern on your credit record that the decline of credit being offered to you can start. Lenders are very astute when it comes to looking for patterns of financial trouble, and most of the time will err on the side of caution and reject an applicant if it looks like they’re having problems.

So, if you have been living with unmanageable debt believing that it was better to have some defaults rather than a definite black mark, you might find that sooner or later you reach the same difficulties in obtaining credit than someone with an IVA has. Every declined application after a credit check is noted on your record and soon you will find that begins to work against you. You also have to deal with the stress of unpleasant creditors plus the burden of a debt that never seems to get paid off that grinds you down.

 

Where an IVA can prove its worth

Yes, an IVA will certainly result in a black mark on your credit rating and it will last for the duration of the IVA. In addition you will not be able to take out any credit during this time. However rather than continue to pay interest, fees and charges on what you owe and watch your debt escalate every month, with an IVA you will know that they have all been frozen and every payment you make is a definite part of becoming debt-free. You’ll have the date when you will complete all your payments, and any debt balances that remain will be written off and you will be debt-free, perhaps for the first time in your life. And because of the legal nature of an IVA your creditors cannot contact you and must deal with only your IP for the entire five years.

 

Once your IVA is finished, you will have to spend some time repairing your credit record and improving your rating. However, you’ll be starting from a clean slate with no debt to weigh you down.

 

The impact of an IVA on your family’s credit rating

Perhaps you are still living at home, or you are married and/or living with someone you have shared finances with. How will an IVA affect their credit rating?

The short answer is that it won’t. An IVA is specific to an individual and any impact on a credit rating will not be spread throughout others credit records who live in your home with you. Their credit rating should remain intact. However, if a spouse, partner or other family member share accounts with the debtor and are uncomfortable with this, some Insolvency Practitioner’s may suggest a new separate basic bank account and a notice of dissociation be placed on their file for reassurance. A quick check with the credit reference agencies every now and then will also provide some reassurance.

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Write Off Unaffordable Debts

In most circumstances an IVA will allow you to write off most of what you cannot afford to repay, i.e. such as unsecured loans and credit card debts will be gone for good once you have received your discharge notice. Note: There are some debts that cannot be written off. Click here* for more information on the limitations.
 

Free From Debt Pressures

Unlike a Trust Deed Scotland, an IVA can make you totally free from provable debts within 60 months, although you will have to make a contribution from your income for up to 3 years if you can afford to. Once you have received your discharge then you are totally debt free subject to some limitations depending on your circumstances.
 

Government Solution

An IVA is under the control of the Government and is intended to help people who are struggling wither finances. An IVA is a formal, legislated debt solution and a legally binding agreement with your creditors meaning you can take piece of mind that every aspect of your agreement is covered contractually and legally.

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