How long is an IVA on your credit report?

October 22, 2018

An individual voluntary arrangement (IVA) typically lasts for five or six years, and is an effective way to deal with unmanageable unsecured debt. The procedure works by making a single payment each month, which is distributed to creditors according to the agreement.

One of the downsides of being in a formal insolvency process is the effect it has on your credit rating, however, so how long does an IVA stay on your credit file?

How long does an IVA remain visible on your credit report?

An IVA stays on your credit file for six years from the date it comes into force, even if the IVA itself only lasts for five years. This means you’ll find it difficult to obtain new borrowing or credit during this time, and potentially for longer afterwards depending on whether you take active steps to improve your credit rating.

The six-year timeframe is statutory for any form of insolvency procedure or debt default, and cannot be overridden even if you’ve met your obligations under the IVA. So how might this situation affect you during the IVA term, and in the future?

The adverse effects of an IVA on your credit report

It’s understandable to think that because you’re dealing with a serious debt situation via an official and legally-binding method, your credit file might not be affected, but any form of regular non-payment of debt is likely to be recorded on your credit report.

Lenders use credit files to reduce their risk as they can obtain an overall picture of whether you’re likely to repay. Although you’re clearly taking positive action to deal with your debts by entering into an IVA, you’ll still have difficulty obtaining further borrowing.

The fact that you’re in an IVA shows you haven’t met the contractual obligations under your original credit or loan agreement, and lenders will see you as a high risk.

Reduced chance of borrowing for six years and more

If you do find a company that’s willing to lend, the terms offered are likely to include a high rate of interest. It’s also important to know that if you borrow more than £500 during the IVA, without obtaining written permission from your insolvency practitioner (IP), you’ll be in breach of its terms and conditions. If the IVA fails as a result, creditors are free to pursue legal action to recover their debts and could potentially force you into bankruptcy.

How to ensure your credit report improves after an IVA

Without proactively building up your credit rating after the IVA ends, you may find lenders refuse your borrowing applications for some time to come. Credit reference agencies hold various pieces of information about you that affect a lender’s decision, but you can improve your credit rating in a number of ways.

  • Ordering a copy of your credit report from the three main UK credit reference agencies, Experian, Callcredit, and Equifax.
  • Checking the information for accuracy – there may be old defaults that should have been removed, or financial associations that no longer exist but that are negatively affecting your credit rating.
  • Using credit wisely – credit-builder credit cards with which you spend a manageable amount each month – on fuel, for example – and pay off in full at the end of the month are a good way to demonstrate that you can manage your finances.

If you would like more information about individual voluntary arrangements and their effect on your credit report, or indeed any aspect of IVAs, call our expert team at UK Debt. We’ll arrange a free consultation to assess your situation, and carefully explain all your options.

Joanne Wright

Head Adviser at our Manchester Office

Tel: 0800 001 4247
Email: enquiries@ukdebt.org.uk

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