When many individuals begin thinking about entering into an individual voluntary arrangement, or IVA, one of the first questions they ask their Insolvency Practitioner is whether the IVA will affect their credit rating.
In short, the answer to this question is yes. An IVA will have an effect on your credit rating because it will remain on your credit report for approximately six years after you begin your IVA. In most cases, this means you will only have to wait a year after completing your IVA before it is removed.
Before you are discouraged, however, there are several factors you need to consider.
Individual Voluntary Arrangements and Your Credit Rating
- If you are currently struggling to pay off the debt you owe to creditors and are falling behind on your payments, then your debt is most likely serious. This means your credit rating has most likely already been negatively affected by your debt and will continue to plummet if you don’t take steps to improve it. Remember- the affect on your credit rating with an IVA will last only six years. If you do nothing about your debt, the consequences could be much more severe.
- Most Insolvency Practitioners will caution you against trying to obtain new lines of credit while you are in the process of paying on your IVA. If you can’t pay your current debt, obtaining new debt can make your situation worse. Unless you are facing exceptional circumstances, there should be no reason you need to obtain a loan or new credit while you are making your individual voluntary arrangement payments.
- Almost all debt management solutions have an effect on your credit rating, except remortgaging your home and debt management. If you want to become debt free, you will most likely have to deal with some consequences of your debt.
- Your Insolvency Practitioner will work with you to find a payment you can actually afford each month. This means you won’t have to sacrifice other important bills, like your utilities, mortgage payments, rent, vehicle payments, or food, in order to pay back they money you owe to your creditors. This also means you won’t have the need to obtain additional lines of credit, unless special circumstances arise.
While you might be hesitant to enter into an IVA because of how it will affect your credit rating, you shouldn’t be. If your debt problems are serious enough that you need this type of help, you need to think about paying off your debt, rather than obtaining new debt. If you adhere to the terms of your individual voluntary arrangement, you can begin obtaining new lines of credit in six short years when the IVA is removed from your credit file.
Harrington Brooks representative Martin Bradley says “An IVA can help you become debt free in a very short period of time, and that is the most important factor you should consider when you are choosing a debt management solution that is right for you. If you are having trouble paying back your creditors, don’t let your credit rating stop you from ensuring a future without debt. Choose an IVA.” Go to the Harrington Brooks IVA eligibility test to find out if you’re eligible.
