Does an IVA affect your credit score?

An individual voluntary agreement (IVA) is an agreement between you and your creditors to pay your debts back over a certain amount of time. It can help you consolidate your debts into a more manageable package, but will also have a significant impact on your credit score.

An IVA will remain on your credit report for up to 6 years. During the period of your IVA (usually 60 or 72 months), you’ll only be able to obtain up to £500 worth of credit, and you’ll have to get approval from your insolvency practitioner to do this.

What is an IVA?

An IVA is an agreement between you and your creditors for you to consolidate your debts into more manageable payments. This agreement usually occurs in a meeting. At least 75% of your creditors have to agree to the terms in order for an IVA to be granted.

Your payments will be made to an insolvency practitioner, who will pay creditors on your behalf. Your creditors shouldn’t contact you after an IVA has been agreed. If you default on an IVA, it’s likely you will be made bankrupt.

Will an IVA be visible on my credit file?

Your credit file is a document which displays all information relating to your borrowing history. An IVA is one of the biggest indicators that you’re bad at borrowing money, so it demolishes your credit score and remains on your credit report for up to 6 years.

Will an IVA affect my chances of getting a loan?

Yes, you’ll only be able to borrow up to £500 during the course of your IVA. You’ll usually have to get permission from your insolvency practitioner to do that. Even in these cases, your credit score is likely to have taken such a hit that you’ll only be able to access credit from products with really high rates, such as payday loans.

After your IVA has been paid off, you may still struggle to get a loan while it’s still logged on your credit report (6 years from the date it started).

The good news is that an IVA is designed to help you pay off your debts. Although your credit score will be affected, it isn’t impossible to get a loan.

Tips

Do

  • Seek advice from a debt adviser to learn if an IVA is suitable for you.
  • Learn how to live within your means during the IVA period (and beyond). The chances are you needed an IVA because you struggled to do this.

Don’t

  • Borrow money unnecessarily during an IVA.
  • Default on your IVA. This will result in bankruptcy.

Example: Megan's loan application and her credit score

Megan had fallen so far behind on her debts that she found she now owed more than she actually owned in cash and assets.

It was suggested she applied for an IVA, and her creditors agreed on the best terms she could actually afford to pay.

It was a struggle, and Megan was unable to borrow any money for 6 years. However, since then, she has been able to rebuild her financial life.

* This is a fictional, but realistic, example.

The bottom line

An IVA is often marketed as a positive solution for serious debt problems and an alternative to bankruptcy. It can be the best way out of debt for some people, but in most cases, it will massively impact your credit score for up to 6 years.

Frequently asked questions

Finder survey: How important do Brits think it is to have a credit score?

Response
Very important44.09%
Quite important38.37%
Not that important10.27%
Not important at all3.68%
I don't know what a credit score is3.59%
Source: Finder survey by Censuswide of Brits, December 2023

Read about how different factors can affect your score

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