Can I get Credit with an IVA?
Credit can be an integral part of modern financial life, whether it’s a investing in owning your own home through a mortgage, or simply getting some help with an unexpected expense.
Credit can be essential in ensuring that life runs smoothly, but it can also cause problems if you find yourself unable to pay it back as you expected.
This is where solutions such as IVAs come into play, by allowing you to write off unaffordable debts with a sustainable repayment programme.
IVAs do impose some limitations on the people using them, though, and one aspect of this is their access to credit.
You can still access credit whilst in an IVA, but this access is limited, so it is important to carefully consider whether this debt relief option is a suitable choice for your individual circumstances before committing to it.
Credit during an IVA
During the course of your IVA, you can borrow money, but you cannot borrow more than £500 without getting permission from the Insolvency Practitioner (IP) who is handling your case.
If you apply for more than this amount of credit without receiving your IP’s permission, you will be breaching the terms of your IVA, which could lead to its failure.
When IVAs fail, you will still owe each of your creditors the remaining amount, and will have to organise a new repayment plan.
Forms of new credit might include:
- Credit cards
- Personal loans
- Payday loans
- Bank overdrafts
Other types of debt will not count as credit, for example being in arrears with an energy provider. This poses no problem as long as you continue with your agreed upon payments.
If you feel that you must resort to credit to cover day-to-day costs during the course of your IVA, it is a better idea to get in touch with your IP instead.
It could be that your proposed budget isn’t working, and you may be able to lower your monthly payments.
If you encounter an unexpected expense, such as having to pay for an essential household or vehicle repair, it also a better idea to contact your IP before turning to a payday loan.
IVAs do allow some flexibility, and you may be able to skip payments for a month or two.
When this happens, the payments are simply added to the end of your IVA plan, making it last a little longer.
When your IP is considering whether to grant you permission to obtain a higher level of credit, they will consider factors such as:
- Whether this credit is necessary
- How long it will take you to repay
- Whether you will be able to make repayments comfortably on top of your current IVA payments
If your IP does approve a request for credit, it could still be challenging to obtain. This is because IVAs are recorded both on the public Insolvency Register, and your credit file.
This means that potential creditors can see that you have had issues repaying credit in the past, and will make them more wary of lending to you.
This could mean you are either refused credit, or only offered higher interest rates. Despite these difficulties, it is entirely possible to access credit whilst in an IVA.
Credit after an IVA
A record of your IVA will remain on your credit file for six years from its start date. This means that, in a standard 60 month IVA, it will drop off your credit file about a year after you make your final payment.
It is a good idea to request a certificate of completion when you finish your IVA, to provide proof that you satisfied its terms.
Because of the negative impact an IVA can have on your credit score, obtaining credit shortly after it has finished can pose some issues.
It may be best, if possible, to wait until the IVA has dropped off your credit file before applying for credit again.
You can also begin to repay your credit by ensuring bills are always paid on time, and considering a credi-building credit card.
If you need credit sooner, you may have better luck approaching a credit union than the high-street lenders. Credit unions can also be a better source of credit during the course of your IVA.
For more advice about IVAs, and whether one might be the right solution for you, chat to a friendly Creditfix advisor today on 0808 2085 198.