One of many concerns for people who are considering entering into an IVA is the impact an IVA will have on their Credit Rating but, because this issue is considered one of the
So we’ve written a free IVA guide on the subject and it’s ready for you to download here:
Individual Voluntary Arrangement (IVA) vs Credit Rating.
But to help you further, here’s a brief explanation of how an IVA affects your Credit Rating and what you should look out for.
The first thing that needs to be said is entering into an IVA will damage your credit report for a total of 6 years, and the 6 year countdown starts ticking the moment the IVA is agreed at your creditors meeting.
Once an IVA has been agreed at your creditors meeting, it prohibits any further legal action by your creditors and ought, therefore, to be the last negative marker put on your credit report or file. But this is not always the case.
Due to the sometimes protracted time scales of entering into an IVA and the fact a creditor might already be engaged in taking legal action against you before your IVA is in place, it is possible that your credit report might receive a default notice after the IVA has begun.
This can easily be rectified by contacting the Credit Reference Agency concerned directly and pointing out the mistake on your report, but it pays for you to remain vigilant during the initial phase of your IVA and keep a watchful eye on your creditors, to ensure that any actions they do take are recorded correctly. Otherwise, you may find that your credit file is damaged for a little while longer than it should be.
There are commonly two different actions which your creditors might take against you before your IVA reaches its creditors meeting. They are:
- Default Notice: Which is a formal notice of your missed payments, normally put on a credit report or credit file to alert potential lenders that you are having trouble maintaining your financial commitments. But it is also a legal requirement for a creditor to issue a default notice before they can take any further legal action to recover the outstanding debt.
- County Court Judgement: A CCJ is a formal court judgement against you, declaring that you are judged to owe the level of money claimed by the creditors. A creditor must have a judgement against you in order to begin enforcing the repayment of the debt, such as through the courts collection officers, the court bailiffs.
It is by no means certain that your creditors will take either of these actions, because it will cost them money to do so and, if they are aware you are preparing an IVA proposal, they would realise that any action they took would be worthless once the IVA had been agreed.
If, however, either of these actions are taken by your creditors, the effect will be that your credit report or credit file will be damaged for 6 years from the date they are recorded, as is the case with your IVA.
But be aware, if the default or CCJ are recorded with a date later than the IVA creditors meeting date, they will remain on the credit report for longer than the IVA, which is incorrect and, therefore, should be addressed.
Many people find the fact that their credit report will be damaged by an IVA difficult to accept. They feel that having access to credit is a necessity.
But, in fact, having a ‘Triple A’ credit score is often found to be an inherent part of the original problem which, in turn, enabled the debts to rise to uncontrollable levels.
Most IVA applicants agree that, after some initial adjustments, living without credit is actually pretty straightforward, once the financial pressure of maintaining the debts is removed.
Further to that, because an IVA removes the need to get a loan, there’s no further need for a ‘Triple A’ credit rating. No loan applications, no credit checks.
Once your IVA has been successfully completed, your Insolvency Practitioner will give you a Certificate of Completion.
You will need to send copies of this certificate to the Credit Reference Agencies with a request for them to up date your credit report accordingly.
In most cases there will still be 12 months to wait before the IVA falls off your report. During this final year you will be able to apply for credit, should you wish too but, even though you are actually debt free, getting credit will be almost impossible.
Read this article for some good pointers about living without credit, after an IVA.
After this final year, there will be no mention of your IVA on your credit file and from this position you will be able to rebuild your credit score should you wish to.
If you would like to discuss this issue, or any other debt related problem with one of the My IVA Adviser team, call free on 0800 088 7503 anytime to speak to an IVA specialist.
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