Can You Pass A Credit Check With An IVA?

An Individual Voluntary Arrangement or IVA is commonly used for individuals who are struggling to pay their debts and would like to enter into an agreement to pay an affordable amount each month in order to clear their debts over time. 

It can help you repay loans by putting in place a proper plan that makes repayments easy and provides assurance to the creditors that they will receive a consistent repayment of an individual debt.

Such a solution can also help protect you from legal action that might be taken by the creditors. 

However, an IVA can have a severely adverse effect on your credit rating.

So, you may be wondering can you pass a credit check with an IVA? This guide aims to answer that question and clear up any confusion on the topic. 

How Does An IVA Work?

An IVA is a debt solution that makes it possible to pay off unsecured debts through affordable monthly payments.

It is generally used for debts owed to more than two creditors, and the arrangement is set up with the help of a Licensed Insolvency Practitioner.

Such an arrangement can be beneficial for creditors since it guarantees payment of a part of the debt owed to them. And it helps the debtor to make payments in monthly instalments, which is easier to do. 

An IVA generally remains remains on your credit file for six years from the date you enter into the agreement, and almost any size of debt can be included in the arrangement.

The debtor’s name is recorded in the Individual Insolvency Register as insolvent and remains there for as long as the IVA is in effect.

Can You Pass A Credit Check With An IVA?

Passing a credit check while an IVA is in place can be incredibly difficult, but it is not impossible.

The reason is that an IVA indicates to loan providers that you have previously missed repayments with creditors.

This makes you a higher-risk customer, and lenders ready to provide credit may charge higher rates in such situations.

That is one of the reasons why it is best to apply for more credit only after completing the IVA.

While an IVA cannot be removed from your credit record before five to six years, completing it as soon as possible can improve your chances of obtaining further credit in the future and give you a better chance of improving your credit score. 

Before entering an IVA we recommend seeking professional advice as there may be other options available to you that may reduce the harm to your credit rating. 

Obtaining a mortgage and other forms of credit may still be possible with an IVA registered on your credit file so if you’re unsure whether you would be eligible, contact a specialist who will be able to look into options for you.

If you’re unable to obtain a mortgage or credit at this stage, they can advise you on the steps to take moving forward in order to improve your chances in the future. 

Soft vs Hard Credit Checks

A credit search or credit check is an investigation into your credit history performed by a loan provider or creditor.

It enables the lender to understand how well your finances have been managed, helping them decide whether to provide credit or not.

Credit checks can be hard or soft, and understanding the difference between them is crucial when applying for credit while having an IVA.

Soft credit checks usually involve the lender performing a check into a client’s credit history but will not affect your credit score. 

Records of such checks are maintained, but they do not appear on the credit report and, thus, leave your credit rating unaffected.

In contrast, hard credit checks involve a detailed and comprehensive examination of your credit and loan history to determine the amount of risk involved in providing credit.

Such checks can be performed by potential employers, phone companies, letting agencies, landlords, and utility companies.

Information for the purpose of these checks is provided by the three credit rating agencies of the UK, which include TransUnion, Equifax, and Experian. 

Information Obtained Through A Credit Check

A lender can gain lots of information through a credit check, which generally includes:

• Name and date of birth
• Past and current addresses
• Electoral status
• Current overdrafts
• Active credit accounts (payday loans, mortgages, credit cards, etc.)
• Public records (IVAs, county court judgements, etc.)
• Possibility of identity theft or fraud

Does an IVA Affect Your Credit Score?

An IVA can be helpful to some individuals since it allows paying off debts in easy and affordable instalments. However, like all debt solutions, it can adversely affect your credit rating.

Once an IVA becomes active, it is mentioned on your credit report, also known as a credit reference report or credit record. 

It generally stays there for five to six years, depending on whether you can repay the debts included under it. Even if all loan repayments are completed earlier, the IVA will stay on your report but will show as satisfied. 

During this period, your credit score or rating may be low, which can make it challenging to obtain more credit. Lenders are unlikely to provide credit to a customer with a poor credit score, as the risk involved is much greater.

Even if you can find a lender who is ready to provide credit, it is most likely that the interest rates will be higher than rates available to individuals with a good credit score.

Additionally, obtaining credit worth more than £500 while having an IVA is not possible without the written consent of your insolvency practitioner. 

Getting this consent is also unlikely, and in most cases, non-compliance with this condition can cause the IVA to fail. If you need credit for emergencies, the insolvency practitioner might be able to provide other solutions that do not affect the IVA.

FAQs

1. Why is a credit check performed while an IVA is in effect?

There can be various reasons why a lender may want to perform a credit check while you have an IVA. Generally, the most common reason is when you apply for more credit during this period.

2. What happens after an IVA is complete?  

Once all payments under an IVA are paid, it is marked complete, and your details are removed from the Individual Insolvency Register. The record of your IVA will still remain on your credit file but will be marked as complete. 

3. Can you rent a property while having an IVA?

Landlords may also perform credit checks on prospective tenant’s credit history, which can create a problematic situation for those with an IVA.

However, it may still be possible to rent a property whilst in an active IVA as Landlords and Letting Agents have discretion over who they let the property to. 

4. Do windfall gains affect a credit check while having an IVA?

Windfall gains may require you to pay off debts to your creditors in full instead of a portion that may be included under an IVA. But such gains will not have an effect on a credit check and the IVA. 

5. How can you improve your credit rating after an IVA to pass future credit checks easily?

Besides proper financial planning, there are several ways by which you can improve your credit rating after an IVA is complete.

These include avoiding unnecessary expenditures, ensuring timely payment of bills, and registering on the electoral register to ensure all information is correct.

Conclusion

If you have an IVA in effect, passing a credit check can be more difficult, though not entirely impossible. That said, such a check is usually conducted when you apply for more credit, which should be avoided as much as possible when an IVA is in place.

Applying for more credit during this period can cause your credit rating to fall even further, posing various difficulties when trying to get credit in the future.

So, the best solution in such situations is to consult the insolvency practitioner, who can advise on the best steps to take.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.