How Will an IVA Affect My Credit Rating?

If you think you may require more credit in the near future, an IVA might not be the best solution for you and you may benefit more from a Debt Management Plan, which is one of the options we offer here at Abbotts.

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Many people who are struggling to pay back their debts are unsure about entering agreements such as IVAs as they are worried about how it may impact their credit score. The details of your IVAs will be kept on a public register called the Individual Insolvency Register for the length of the arrangement and your credit score may be negatively impacted, however, with a well managed agreement, you can get your finances back on track, helping to improve your financial record in the long run.

If your creditors took action before you sought an IVA, you may also have a county court judgement (CCJ) that will be recorded on your credit file for 6 years from the date it was issued, however, these are usually included in your IVA so you don’t have to worry about paying them both. You can also rest easy knowing that once you are in an IVA, your creditors cannot take legal action against you. As IVA’s typically last between 5-6 years, your CCJ record will be removed from your file soon after you have completed the agreement.

During your IVA you will struggle to get credit, though you may be able to get it for personal household goods and services or business goods and services if you own your own business. Keep in mind that creditors will often charge you higher interest rates if they can see you currently have an IVA, so make sure you only apply for necessary credit to avoid getting into more debt. If you’re looking to get over £500 in credit, you must seek written approval from your insolvency practitioner (unless the credit is for public utilities e.g. gas, electricity) who will decide whether or not it is a risk worth taking.

After the IVA is finished and your details have been removed from the Individual Insolvency Register, you can apply for credit but this will likely prove difficult in the short term. However, by meeting the terms of your agreement and taking steps to improve your credit profile, you can build a better score.

My Credit Score is Still Low, Now What?

If your credit score is still too low to be accepted for a loan, you may require a guarantor. A guarantor is someone who legally agrees that they will repay the money if you are unable to. If you do use a guarantor, you should make sure the person you choose has a good credit score themselves as they will also have to share their details for a credit check.


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Is an IVA right for me?

If you think you may require more credit in the near future, an IVA might not be the best solution for you and you may benefit more from a Debt Management Plan, which is one of the options we offer here at Abbotts. We also offer:

  • Bankruptcy

  • Administration orders

  • Consolidation

  • Debt Relief Orders

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1. Register to vote

Make sure you are registered to vote at your current home address on the electoral register. By confirming your name and address, you become more easily identifiable by lenders and the more security lenders have, the more confident they are in lending money, therefore improving your credit score. Visit GOV.UK to find out more about registering to vote.

2. Pay your bills on time

Paying your bills on time proves that you are reliable and good at managing your finances (even if you have had some difficulties in the past), making you more trustworthy and appealing to credit lenders.

3. Pay off existing debts and complete your IVA

Before you start to apply for new credit, you should try to pay off any current debts you have (including your IVA) because lenders are more reluctant to loan you more money (even through finance plans) if they can see you already have a lot of debt or that you have failed to pay debt in the past and are still in the middle of your IVA.

4. Don’t borrow more than you can afford to pay back

If you are considering an IVA, you probably already know that being unable to pay your debts can get you into trouble, leading to Country Court Judgements (CCJ), Individual Voluntary Agreements (IVA) or bankruptcy. If you are ever seeking credit in the future, make sure you know that you’ll be able to pay it back.

5. Avoid high-interest loans

The greater the interest on the loan you take, the more you’ll end up having to pay back. By choosing loans with lower interest in the future, you’re at less risk of coming into trouble again and are more likely to be able to pay it off on time.

6. See if you are linked to someone else

Joint account with a spouse, family member or friend links their credit rating to yours. This could impact your personal rating, so be sure to close or transfer any joint accounts that could be negatively affecting your score. Once you’ve done this, you can speak with credit reference agencies to ask them to add a notice of dissociation on your report, which will prevent your former associate’s credit score from impacting yours in the future.

7. Check your file for any mistakes

Even a small mistake on your credit file could negatively impact your credit score, which is why it’s so important to double check that all the information is correct. If you do spot any incorrect information, be sure to report it straight away.

8. Check your file for fraudulent activity

If you notice anything on your file that is incorrect or looks suspicious, e.g. credit you haven’t applied for, this could be someone committing fraud by using your name. Not only would they be committing fraud, but they could also be having a detrimental effect on your rating.

9. Utilise less of your credit with future loans

Credit utilisation is how much of your credit limit you use, e.g. If you have a credit limit of £5,000 and you use £4,000 of that, your credit utilisation is 80%. In general, the less available credit you use, the more positively credit lenders will see you because it makes you seem more reliable and better at managing money. If possible, aim to keep your credit utilisation below 25% to improve your credit score.

10. Don’t apply for credit through multiple lenders at once

Each time you apply for credit, the creditors run a ‘hard inquiry’ on your credit report. Every time a hard inquiry is run, your credit score can be lowered by as many as 5 points. If multiple inquiries are run in a short period, your score can be lowered even more.

How can I apply for an IVA?

At Abbotts, we understand that debt is stressful enough without complicating things with confusing jargon and lengthy processes. That’s why we’ve made it easier to find the right solution for you by narrowing it down into 3 simple steps. All you have to do is answer a few questions using our online questionnaire here to find out how much you can write off. One of our specialists will then get in touch with you to discuss the most suitable plans available to you, which you can then choose.

For more information check out our Tips & Advice and FAQs. If you have any more questions, please don’t hesitate to get in touch with our helpful team who will be happy to answer any queries you may have.

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