Will an IVA affect my credit rating?

1 February2021

Here at Think Money, we're dedicated to finding the best way for you to get back in control of debt problems. We realise that having debts you can no longer afford won't just affect your finances, but could easily get in the way of getting on with your everyday life too.

Whatever situation you're in with your debts, we could have the ideal solution for you. If you have a significant amount of unsecured debt you can't afford to repay, entering an IVA - an Individual Voluntary Arrangement - could be the best way for you to repay your debts at a pace you can realistically afford.

Most debt solutions come with some downsides - and an IVA is no exception. For example, it will show up on your credit rating for six years, and as an IVA typically lasts for five years, that means you could have difficulty getting further credit for up to 12 months after you've successfully finished your IVA.

On the other hand, there are many ways an IVA could help you if it's the most suitable approach for your situation. Let's take a look.

What is an IVA?

An IVA is a legally binding agreement that could be made between you and your unsecured lenders. It's designed to help borrowers in England, Wales and Northern Ireland repay their unmanageable, unsecured debts at an affordable pace.

Once your IVA has been agreed, you would:

  • Make single monthly repayments, calculated to be affordable around your other essential outgoings (food, rent/mortgage, utilities, etc.)
  • Not have to lose your house (as often happens in bankruptcy), although it's likely you'd have to release some equity to go towards your repayments if you're a homeowner.
  • Stop further demands from your unsecured lenders
  • Be free of your unsecured debts on successful completion - in most cases, after five years.

Note that an IVA will only give you all the benefits if you stick to the terms.

Who is an IVA suitable for?

An IVA won't be suitable for everybody struggling with their debts. But an IVA may be suitable for you if:

  • You have a significant amount of unsecured debt you can't afford to repay in a reasonable period
  • You can commit to regular - if smaller - monthly repayments for around five years
  • You're a resident of England, Wales or Northern Ireland.

If you meet the above criteria, an IVA from Think Money could be the most suitable approach to your debt problems.

What effect will an IVA have on my credit rating?

As we mentioned earlier, entering an IVA will have a negative impact on your credit rating - which will last for a year after your IVA has finished (if it runs for the standard 5 years). This could make getting credit during this time difficult - and if lenders do agree to your credit application, they may charge you a higher interest rate.

Having said that, you might feel you don't want to borrow again anyway (unless it's essential), and this could give you the motivation to stay debt-free in the future.

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Tags: IVA, debt, credit rating, credit history, affect credit

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