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Credit Rating and IVA

Credit Rating and IVA

An IVA will negatively affect your Credit Rating. Any new application for credit made during the Arrangement is likely to be rejected.

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What happens to your Credit Rating in an IVA?

When you start an IVA it is recorded on your credit file. This happens as soon as the Arrangement starts. As a result your credit rating will be negatively affected.

If you then apply for any new form of credit your IVA will be highlighted when the lender does their credit check. They are then likely to reject your application.

If your credit rating is already poor because you have default notices and CCJs then starting an IVA will not make it any worse.

If you are struggling to pay your debts your credit rating will normally become poor anyway. Any missed payments, default notices and CCJs are also recorded on your credit file.

How long will your Credit Rating be affected by an IVA?

The record of your IVA will remain on your credit file for 6 years from its start date. As such it will have a negative effect on your credit rating for the whole of this period.

6 years after your IVA started the record must be deleted from your file. This is a legal requirement of the Data Protection Act. Once it has been removed your credit rating will begin to improve.

A standard monthly payment IVA will last for 5 years. This time scale might be even shorter if you settle the Arrangement early. However the record will remain on your credit file and continue affecting your credit rating for the full 6 years.

You do not need to contact the credit reference agencies or send them any evidence that your IVA is completed. The change to your credit file will be made automatically within 3 months of the 6th year anniversary.

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Which Credit Facilities can you continue using during an IVA?

Despite being in an IVA there are some credit facilities that you can still use. One of the most common is your mobile phone contract. As long as you maintain the monthly payments this agreement will remain in place.

You will also be allowed to keep any pay monthly contracts you have with utilities companies to pay for things like gas and electricity.

If you have a vehicle on finance you will normally be allowed to maintain this agreement. However the amount you are paying will be reviewed and should not be unreasonably high.

When you come to the end of your car finance agreement you may struggle to renew it on the same terms. If you need a car this situation must be planned for before you start the Arrangement.

If you have an active credit card with a zero balance this is not a debt. As such it is not included in your IVA. As long as you have no other debts with the same bank this facility will remain open. You could therefore continue to use the facility as long as you pay off any balance in full at the end of each month.

Remortgaging your Property during an IVA

If you are a home owner you might be able to settle your IVA early by remortgaging. If you can release a lump sum from the equity in your property you could offer this instead of the ongoing monthly payments.

Because of your poor credit rating remortgaging during an IVA is not easy. However it is possible. This is particularly the case if you have equity equalling more than 15% of the property value.

If you remortgage during an IVA the interest rate charged is likely to be higher than the one you are currently on. As such your monthly payments will go up.

As a home owner under the terms of your IVA you will always have to try and release equity from your property. This is normally in the 5th year of the Arrangement. Given mortgage companies may now be prepared to lend you may have to do this instead of using the option of extending your payments for 12 extra months.

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