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Will an IVA affect my Credit Rating?

When you enter into an IVA all unsecured accounts automatically go into default, given that you have ceased to comply with the terms and conditions of the relevant credit agreements.

Some of your accounts may already have been in default prior to that time. All defaults are recorded on your credit files which are maintained by credit reference agencies such as Experian and Equifax. Access to and publication of such personal financial data relating to insolvent individuals is not prohibited by the Data Protection Act. The business of the credit reference agencies is to retrieve such data, record it on your credit file and sell it to interested parties provided they have a consumer credit license. Thus banks, mortgage providers, HP providers, credit card providers and even trading creditors may be able to access your credit file. For a small fee you or any private individual can obtain their own credit file. In certain instances, a private individual can obtain the credit file of another individual such as when the two individuals are co-habiting or even sharing the same house.

The record of such defaults remains on your credit file for six years from the time that the default occurred. If you do an IVA, default data will not be removed from your credit file for six years, even if you successfully complete your IVA and obtain a Certification of Completion (of your IVA) from your supervisor.

Credit Rating in an IVA

A standard condition of your IVA is that you do not acquire any credit or enter into any credit agreement without the express permission of your supervisor, who in turn may have to obtain the express permission of your creditors. There are usually some practical exceptions to this, which are anticipated and detailed in your IVA proposal. For example, you will usually be allowed to incur credit in regard to some utilities such as water charges, electricity and gas but a monetary ceiling is normally imposed on such items of expenditure e.g. no more than £500 credit may be incurred in respect of such items. Your credit file will carry the records of such credit activities. It is important to maintain payments in respect of all forms of credit allowed by your IVA and when you complete your IVA, you would expect your good track record on such credit to be viewed positively by creditors.

In regard to your secured debts, your IVA allows you to continue servicing these. However, if you needed to change your car for example and enter into a new HP agreement you would have to obtain the express permission of your supervisor and creditors. You may have anticipated this need and allowed for it in your IVA proposal but nevertheless you will need to clear it with your supervisor before you progress the matter. If you wanted to re-mortgage your property to release equity, or to extend the term of the mortgage (thereby reducing monthly mortgage payments) or to switch your mortgage from being on a re-payment basis to being on an interest only basis, you would again have to obtain the express permission of your supervisor and of your creditors.

In considering any request for credit facilities, whether during the life of your IVA or following its successful completion, creditors will naturally check on your credit history via your credit file. You may be refused credit by some lenders if your credit file still carries records of your defaults. If you are granted credit, you may have to pay premium interest rates. If you were to seek to take out a mortgage for example, lenders would be likely to seek a higher deposit than if you had a clean credit history and you could be quoted interest rates as much as 6% to 8% greater than high street rates.

On the other hand, creditors will take into account that you dealt with your former financial difficulties by entering into an IVA, by maintaining it and by successfully completing it. They will also consider how you managed any credit allowable while you were in your IVA (e.g. credit used to pay for utilities). You will certainly find it easier to access credit after completing your IVA than you would if you had just been discharged from bankruptcy. These are positives and may well have a crucial bearing on whether you can obtain post IVA credit and what interest rates you may be charged.

Entering an IVA certainly affects your credit rating. However, six years from the dates of your defaults, the credit reference agencies should automatically update your credit file and remove all references to your defaults. If you find that this has not been done, you can request the credit reference agencies to do so. If you do not get a satisfactory response from them, you can invoke their complaints procedures to deal with the matter and so begin to repair your damaged credit rating.

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