Can I Get Credit With an IVA? What You Need to Know

An Individual Voluntary Arrangement (IVA) is a formal insolvency solution in the United Kingdom, designed to help individuals manage unmanageable debt. It is a legally binding agreement between a debtor and their creditors, allowing for debt repayment over a fixed period, often as an alternative to bankruptcy. Many individuals with an IVA are concerned about obtaining credit during and after the arrangement. Understanding the implications of an IVA on one’s financial standing and future borrowing capacity is important.

How an IVA Affects Your Credit Rating

An Individual Voluntary Arrangement is a formal and legally binding agreement between a debtor and their creditors, overseen by a qualified Insolvency Practitioner (IP). This arrangement is recorded on an individual’s credit file with major credit reference agencies. The presence of an IVA on a credit report significantly impacts an individual’s credit score, indicating a history of financial difficulty.

Details of an IVA are also publicly accessible on the Individual Insolvency Register. This register can be searched by various entities, including potential lenders, landlords, and some employers, further highlighting an individual’s insolvency status. Lenders typically view individuals with an active IVA as a high credit risk, making them reluctant to extend new credit due to the increased likelihood of default.

An IVA remains visible on an individual’s credit file for six years from the date it was approved, even if the arrangement completes earlier. This six-year period can significantly affect an individual’s ability to access mainstream financial products. The entry on the Individual Insolvency Register typically remains for the duration of the IVA and for three months following its successful completion.

Getting Credit While Your IVA is Active

Individuals under an IVA typically require formal permission from their Insolvency Practitioner (IP) for any credit exceeding a specified threshold, commonly £500. This threshold applies to various forms of borrowing, including new loans, credit cards, and significant hire purchase agreements. The IP assesses any request for new credit by considering its necessity, whether repayments are affordable within the individual’s existing IVA budget, and how it might impact the interests of existing creditors.

Permission for non-essential credit is rarely granted, as the primary focus of an IVA is to repay existing debts. For instance, essential vehicle finance for work might be considered, but it would require IP approval and a clear justification of its necessity and affordability.

Obtaining credit above the stipulated threshold without the IP’s explicit written permission constitutes a breach of the IVA terms. Breaching the terms of an IVA can lead to serious consequences, including the potential failure of the arrangement. If an IVA fails due to such a breach, the individual loses the protection it offers from creditors, potentially resulting in creditors pursuing the full outstanding debt or even initiating bankruptcy proceedings. Even with IP permission, mainstream lenders remain highly cautious due to the IVA’s presence on credit files and the public Insolvency Register, often leading to less favorable terms or outright rejections.

Improving Your Credit After an IVA

Upon the successful completion of an Individual Voluntary Arrangement, the entry on an individual’s credit file is updated to reflect that the IVA has been completed. Despite this update, the IVA entry itself remains visible on the credit file for a total of six years from its original start date. It is important for individuals to verify that all debts included in their IVA are accurately marked as “satisfied” or “partially satisfied” on their credit reports.

Regularly checking credit reports from the major credit reference agencies is important to ensure all information is correct and updated. Registering on the electoral roll can also positively influence a credit score, as it helps lenders verify identity and confirm address stability.

Individuals can begin to rebuild their creditworthiness by responsibly using credit-builder products, such as credit cards specifically designed for those with limited or poor credit history. These products typically come with lower credit limits and higher interest rates, but consistent, on-time payments can demonstrate financial responsibility.

Making all payments on time and in full is important for establishing a positive payment history and gradually improving a credit score. Avoiding multiple credit applications in a short period is also advisable, as each application can temporarily impact the credit score. Rebuilding a strong credit profile after an IVA requires consistent financial discipline and patience.