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Individual Voluntary Agreements (IVAs) are a useful tool for managing unaffordable debts, but such arrangements do impose restrictions on the people who use them. For example, they will make accessing credit more difficult both in the short and longer-term.
Although it’s not impossible to access credit with an IVA, there will be restrictions. Arguably though, once this debt solution has been resolved, you’ll be a better place to get credit in the future.
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When evaluating whether to provide credit or a financial product, lenders will investigate your credit report.
Details of IVAs are held on a public record called the Individual Insolvency Register. When you apply for credit during the term of an IVA, the lender is likely to check the register and details of this will be noted on your credit file by credit reference agencies.
This will signal to the lender you’ve had difficulty repaying debts. As a result, creditors will likely be reluctant to offer additional financing.
The IVA will not be removed from the register until three months after it has ended. This means, at least in the short term, your credit score will be adversely affected by the IVA.
Although you can get credit during an IVA, you must tell your insolvency practitioner if you intend on taking out more than £500 of credit during the agreement. Otherwise, you could be breaching the terms and this may cause your IVA to fail.
Some companies specialise in lending to people with an IVA, but you will most likely be offered a low limit and have to pay a higher level of interest.
Once your IVA ends, you will receive a certificate of completion. Your information will shortly be removed from the Insolvency Register and credit reference agencies should automatically be updated, but it is always worth checking your file to make sure this has been done.
You can also ask for a note to be added to your file explaining why you got into financial difficulty and had to apply for an IVA, such as redundancy or illness.
Your credit score should return to a better status and you can start looking into rebuilding your rating. It may still be difficult to get good deals on credit but keeping up repayments and remaining within limits should positively affect your score.
Therefore, after the IVA, there shouldn’t be anything stopping you from applying for credit.
Although an IVA sounds like it’s restricting what financial products you can take out – during and after – it’s important to think about if you would have got credit anyway.
An IVA is used to resolve multiple debts so it’s safe to assume you already owe money to multiple organisations. When applying for a loan, lenders would have seen this information on your credit file. Although an IVA demonstrates you’ve had problems repaying creditors before, it does signal you’re doing something about your debts.
This is arguably better than a credit report which contains several financial products which you’re struggling to pay.
Therefore, an IVA may put you in a better financial position for the future.
Once your IVA has been completed, you should be proud of your achievement as you’ve taken positive action to resolve your debts. Now, there’s the matter of rebuilding your credit rating. Fortunately, there are several ways to do this. For example:
Over time, your credit rating should increase and you’ll be well on your way to better financial products. You might even be able to get a mortgage after an IVA.
An IVA can seem like a complex financial product but if you have any queries around this agreement, our trained advisors will be happy to answer your questions. To find out whether this solution is right for you, get in touch today.
Debt write off applies to unsecured debts and on completion of an IVA. A debt write off amount of between 20% and 80% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.
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