An Individual Voluntary Arrangement (IVA) is a popular debt solution that can help you clear your unsecured debts, but it’s normal to worry about how it might affect other areas of your finances, such as your credit score.
However, while an IVA proves that you’ve taken action to deal with your debt, simply seeing it on your credit report can be enough to make creditors wary of entering into another credit agreement with you.
An Individual Voluntary Arrangement (IVA) is a popular debt solution that can help you clear your unsecured debts, but it’s normal to worry about how it might affect other areas of your finances, such as your credit score.
However, while an IVA proves that you’ve taken action to deal with your debt, simply seeing it on your credit report can be enough to make creditors wary of entering into another credit agreement with you.
This guide will explore the impact of an IVA on your credit report in more detail, including whether you can remove an IVA from your credit score and how to improve your credit score after an IVA.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal agreement between you and the people you owe money to (your creditors) to repay your unsecured debt through a series of agreed-upon monthly payments over a set period.
The average IVA lasts five years, but it can last six years if you fail to repay the amount agreed in your IVA proposal by this time. This can happen if you have a payment break or temporarily lower your payments.
An IVA can only be managed by an Insolvency Practitioner (IP) who is a financial professional authorised to act on behalf of individuals facing insolvency. They will review your finances and determine if an IVA is the right option for you.
Once you complete an IVA, any remaining debt not repaid through the arrangement will be written off and you’ll be officially declared debt-free.
Who will see my IVA?
When you enter an IVA, it will be listed on your credit file for six years and the Individual Insolvency Register (IIR) until three months after you’ve been discharged.
The only people who can access your credit file (aside from yourself) are companies with ‘permissible purpose’, such as mortgage providers, lenders, insurance companies, potential employers, utility providers, debt collection agencies, and government agencies.
Because the IIR is a public register, anyone can view your entry and see that you have an IVA. However, it is usually just accessed by landlords, creditors, and employers who want to check your financial history.
How will an IVA affect my credit rating?
Having an IVA on your credit record will impact your credit rating and your ability to access credit for several years.
Because your credit rating is directly influenced by the information contained on your credit report, any evidence of missed payments or an insolvency solution will cause your credit score to drop.
During the six years an IVA is on your credit file, your credit score will continue to decrease and you’ll find it challenging to get lenders to approve you for credit. This is because an IVA indicates that you’ve missed debt payments in the past and there is a chance you could default on future credit agreements.
When you apply for credit, lenders will check a number of factors, such as how old the IVA is, whether you’ve made payments as agreed, and whether you’ve had any other financial difficulties since you entered the IVA.
How to remove IVA from credit report
IVAs are automatically added to your credit file and removed after six years without you needing to do anything.
However, there are some situations in which you may be able to remove an IVA from your credit report before six years. We’ve outlined them below:
The IVA is incorrect
Though credit reference agencies take great care to ensure IVAs are reported correctly and accurately, mistakes are always a possibility. For example, the incorrect debt level may be listed or the start date may have been recorded late.
When this happens, you should contact the relevant credit reference agency and ask them to update your record or remove it completely. They will usually ask you to provide evidence to enable them to make the change, such as a letter or IVA completion certificate from your IP or experienced personal insolvency team.
The debt has been repaid
Repaying the debt in full won’t get it removed from your credit file but it will get it marked as ‘complete’, which can be more favourable for lenders and make it easier to access credit if you need it.
Once six years have passed since the date you started the IVA, it will be removed from your credit reports from all of the main credit reference agencies and you’ll be free to get on with your life. Remember, though slight delays are normal, an IVA should be automatically removed from your credit file shortly after you make your final payment.
How can I improve my credit score after an IVA?
Even if you have successfully completed your IVA, repairing your credit history should still be one of your main priorities.
Here are some of the things you can do to improve your credit score after an IVA:
Check your credit file
Once your IVA is complete, you must check that the information recorded on your free credit file from all three credit reference agencies (Experian, TransUnion, and Equifax) is correct.
The details listed will be largely the same across each credit report but credit reference agencies collect information from different sources so you should expect some minor discrepancies.
Some of the things that you should be on the lookout for are duplicate entries, old addresses, misspelled surnames, and debts listed after your IVA started.
Register to vote
When you register to vote, lenders will be able to see that you’re a real person who lives at a real address and this will help them verify your credit history and rule out identity fraud.
This – as well as living at the same address for several years – can help lenders see that you have a stable living situation and might make them more likely to approve you for credit.
The amount your score will increase depends on your current credit rating and the length of your credit history (e.g. how long you’ve been using credit).
Make timely payments
When you apply for credit, your ability to make payments in full and on time is one of the biggest factors a lender will consider when deciding whether to approve or reject your application.
This is especially important for payments that can become priority debts, such as council tax, utility bills, and child maintenance, as there can be serious consequences (e.g. court action or prison) for not paying them.
So if you want to get a loan, mortgage, phone contract, or bank account after an IVA, you must make a conscious effort to stick to the terms and conditions of your other financial obligations.
Consider a pre-paid credit card
The thought of applying for a credit card after an IVA might sound counterintuitive but pre-paid credit cards are designed to help you rebuild your credit history and get your credit score back on track.
However, it’s important to use credit cards responsibly by only using them for everyday purchases and clearing the balance each month.
Over time, your credit score should increase and you should find it easier to access credit if you need it.
Conclusion
Before you apply for an IVA, it’s important to be aware that it will stay on your credit file for six years from the date it was approved and it can be extremely difficult to get it removed.
This can make lenders hesitant to give you further credit and you’ll find it difficult to access most forms of credit, including a mortgage, loan, phone contract, and bank account.
Once you’ve left an IVA, it’s important to start rebuilding your credit score as soon as possible and seek professional debt advice if necessary.
