If you’re struggling with significant levels of debt, an Individual Voluntary Arrangement (IVA) is one option to regain control of your finances. However, the lasting impact of an IVA on your future financial health, and in particular your credit score, do need to be seriously considered before entering into the IVA process. 

In this guide, we explore to what extent an IVA can impact your credit rating. We also provide our top tips for rebuilding and improving your credit score after completing your IVA. 

Do IVAs affect credit rating?

Yes. Entering into an IVA will certainly affect  your credit rating. Unfortunately, there is no way around this. 

An IVA is a form of insolvency. For this reason, by entering into an IVA, you’re signalling to credit reference agencies and creditors that you, as an individual, are insolvent. As a result, credit reference agencies such as Equifax, Experian and TransUnion will record that you have been in an IVA and this mark will stay on your credit report for six years from the day your IVA is approved.

The major lasting consequence of this is that you will likely struggle to secure credit in the immediate future. This is because your IVA mark on your credit file signals to potential lenders that you are (or have been) struggling to repay past or current debts, making you a high-risk borrower.

Naturally, this means that in the years during and immediately following your IVA, you are likely to either be rejected for credit such as personal loans, mortgages and credit cards, or face very high interest rates with any credit you are approved for.  

However, it’s important to remember not to rule out an IVA simply because you’re worried about damaging your credit score. Indeed, if you’re in a position in which an IVA is a serious option, the chances are you’re probably already struggling to service your existing debts. If this is the case, your credit score is likely already being damaged.

How to rebuild your credit rating after an IVA

Once you’ve completed your IVA, it’s time to look to the future and start to nurture your financial health. The best way to do this is to start doing the simple steps needed to rebuild your credit score. Once your credit score is rehabilitated, your general financial health should also start to improve. While some of these steps overlap with common advice on building your credit score, when it comes to rebuilding it following an IVA, there are a few other factors to consider. Below we have listed our top tips for rebuilding your credit score following an IVA. 

Check personal details

While it may sound trivial, the first step to rebuilding your credit rating following an IVA is simply checking that your personal details are correct with all the credit reference agencies. Even the smallest inaccuracies could potentially harm your credit score further. With this in mind, start by requesting your credit report from Equifax, Experian and TransUnion to check that your name, address, and other identifying information is all up to date.

Take out a credit builder card

As the name suggests, credit builder cards are specifically designed to help you rebuild credit. While it may have been difficult, if not impossible, for you to take out a new credit card during the period of your IVA, this form of credit card is ideal as you take your first step back into credit post-IVA. These cards often have lower credit limits and higher interest rates than standard credit products, however, they can be a useful tool for demonstrating more responsible borrowing behaviour. If you’re approved for one of these cards, simply make sure you try to stick to small purchases and always pay off the balance in full each month. Doing this should help to gradually improve your credit score.

Register to vote

This should be done whether you are coming out of an IVA or simply looking to build your credit score for the first time. Lenders not only use the electoral roll to verify your identity, they also see it as a way to add credibility to your profile. For this reason, this simple act can positively impact your creditworthiness.

Manage your finances closely

Finally, and arguably most importantly, you have to start managing your finances in a sensible, measured manner in order to rebuild your credit score. Once again, this is all about actively demonstrating your responsible, rehabilitated financial behaviour to credit reference agencies and lenders alike. To do this, try to manage your finances as closely as possible by making timely payments on all bills and credit agreements – including any new loans or credit cards that you take out. It can also help to set up direct debits and/or standing orders, as well as monthly reminders, to help ensure you never miss a payment.

How long after an IVA can I get credit?

As mentioned above, it typically takes six years from the date your IVA started for it to be removed from your credit report. Although not theoretically impossible, obtaining any credit during this time will be very challenging. This is because your IVA is signalling to lenders that  you’ve had credit issues in the past and that you may not be a responsible debtor. That being said, some lenders may still consider offering credit, albeit with higher interest rates and stricter terms. 

Typically, however, you will only be able to obtain credit after you’ve completed your IVA. Once credit reference agencies receive a copy of your Completion Certificate, your IVA will be removed from your file. At this point, you can start applying for new credit. It’s worth noting however, that you’re still more likely to be approved for credit – or be accepted for products with more favourable interest rates and terms – once you have put some effort into rebuilding your post-IVA credit score.

To find out more about IVAs and the impact they can have on your credit score, visit MoneyHelper for free debt advice, or get in touch with our helpful team today.