An Individual Voluntary Arrangement (IVA) is a popular debt solution that can help you write off your unaffordable debt by repaying a fraction of what you owe.
But even after you have repaid your debts and have been officially discharged from your arrangement, your IVA will continue to appear on your credit file and drag down your credit score.
This guide will tell you everything you need to know about the impact an IVA can have on your credit history, including how long an IVA will appear on your credit file and how you can improve your credit score after an IVA.
What is an IVA?
To understand why an IVA appears on your credit file, it may be helpful to know what an IVA is and how it works.
Put simply, an IVA is a legally-binding agreement between you and your creditors that allows you to repay what you owe through monthly payments that are based on your monthly income and, therefore, affordable for you.
Whilst an IVA doesn’t make your debts disappear, you will be officially released from your debts and considered debt-free when your IVA term comes to an end (on the condition you have fulfilled your duties and made the total monthly payments as laid out in your proposal).
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How long does an IVA last?
The length of time an IVA lasts differs from the length of time it stays on your credit file.
For example, unlike a Debt Management Plan which lasts until the total debt has been repaid in full, an IVA will typically last a total of five years from start to finish. This can be extended to six years if you had a payment break, failed to fulfil the duties outlined in your proposal or missed a monthly payment at some point during your term.
However, an IVA can also last less than five years if you have the means to repay your debt in a single lump sum. This process usually lasts around six months from start to finish and can help you clear your debts and take the first step towards a debt-free future sooner.
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How long does an IVA stay on your credit file?
As with most formal debt solutions, like Debt Relief Orders, IVAs will always be marked on your credit file.
However, whilst an IVA will usually only last five years, an IVA will stay on your credit report for a total of six years from the date it was approved. If you have a number of debts included in your IVA, they may also appear as separate entries on your credit file.
This means that, even if you leave your IVA after five years, your IVA will remain on your credit file for another year but will be marked as ‘complete’ instead of ‘active’. During this time, your credit score will be lowered and you may struggle to get a loan, mortgage or even car finance.
It is also worth remembering that lenders will often ask if you have had an IVA in the past (even if it is no longer noted on your credit file) and you must answer honestly. This will give them a better understanding of your financial history and help them determine whether or not you are a responsible borrower.
How does an IVA affect my credit score?
As long as an IVA is listed on your credit file, it will have a negative affect on your credit score as well as your ability to get credit (even if you had an otherwise good credit score).
When you apply for credit, lenders take a number of things into consideration including your credit history and credit score. Whilst having an IVA on your credit file signifies to lenders that you are actively repaying your unpaid debts, it also means you have failed to make payments in the past and there is a chance you could miss payments again in the future.
Furthermore, details of your IVA will be listed on a public register known as the Individual Insolvency Register which is available online for free and can be accessed by anyone. However, because it is almost exclusively used by lenders and credit reference agencies, your information is unlikely to be viewed by your friends, family or colleagues.
Can I get credit during an IVA?
Whilst not recommended, it is possible to apply for certain types of credit whilst you are in an active IVA.
However, this is likely to cause further damage to your already low credit rating and there are limits to how much credit you can apply for.
For example, you can borrow up to £500 whilst you are in an IVA but if you are seeking more than this amount, you must receive permission from your Insolvency Practitioner (IP) beforehand.
Applying for credit of more than £500 without the permission of your IP can result in a failed IVA and you may be forced to repay your debts through an alternative debt solution.
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Can I get an IVA removed from my credit file?
You cannot get an IVA removed from your credit file before the six-year term has come to an end even if you have repaid your debt early or in a single lump sum. This will only see it marked from ‘active’ to ‘complete’.
In most instances, an IVA will be automatically removed from your credit record after six years have passed and there is no need to do anything or contact anyone to get it removed.
However, in rare cases, your IVA may still remain on your credit report after this time and negatively impact your ability to move on with your life and get a loan or mortgage if you wish.
If this happens, you must contact the relevant credit reference agencies as soon as possible to report the error and ask for it to be updated accordingly. They may ask for proof that your IVA term has come to an end and this can be given in the form of a completion certificate. Some financial experts even recommend sending a copy of your completion certificate to all three credit agencies as soon as you are issued with it to ensure your information is correct and up to date.
How can I improve my credit score after an IVA?
Whilst your IVA may still appear on your credit file after you have finished your term, there are steps you can take to start rebuilding your credit score and improving your financial circumstances. This includes:
- Access free debt advice
- Take out a pre-paid credit card
- Pay off your credit card in full every month
- Budget for living expenses
- Avoid large or unnecessary purchases
Where can I get more advice on How long does IVA stay on credit file? and other debt solutions?
To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 0431 431 or click the button to get started