What directors have to know and understand
This article will outline what you can expect when looking for credit, and what you must consider before entering the insolvency procedure.
First steps after completing your IVA
Firstly, it is possible to gain credit after an individual voluntary arrangement and, therefore, improve your credit score. However, it will not be a straightforward process and building your credit rating may prove difficult in the first few months of completion.
Your first step, however, is to obtain the IVA Completion Certificate from your licensed insolvency practitioner (IP). The certificate is signed by the insolvency practitioner, and is proof that you have successfully completed the procedure.
The record of your IVA will then be marked as ‘completed’ by the Insolvency Service, thus updating your records on the Insolvency Register. You will be removed from the register, but it may take up to three months for this to happen.
You can read more on the process of an IVA here.
Rebuilding credit rating
As mentioned above, it is possible to improve your credit rating but it’s a good idea to inspect your file beforehand. The end of an IVA marks an opportunity to improve your credit score, but try to avoid any credit which is unaffordable. When attempting to build your credit rating, check and compare credit reference agencies.
Typically, the agencies should display the same information on the reports, but it’s possible there may be slight variations. It’s important to note there shouldn’t be any new information regarding your debts since the IVA was recorded with the credit reference agencies.
Hence, if you spot any anomalies, you must address these immediately.
Your individual voluntary arrangement will stay on your credit file for a period of six years after completion.
Car finance after IVA
There’s no one size fits all answer to gaining credit after an IVA, and it’s understandable lenders will be wary of your report. Entering an IVA certainly doesn’t mean you can’t gain car finance, but you are better off attempting to rebuild your credit rating before jumping straight into buying a car.
While the IVA does demonstrate you are committed to resolving credit issues, you will, likely, have to speak to a specialist lender regarding car finance. There are many lenders available for doing so, and you will even find options listed on your file with the credit reference agencies.
If you are seeking car finance during an IVA, you may encounter further trouble. As outlined in the terms of the arrangement, you are not allowed credit above £500. If you do still seek car finance during the IVA, you will need a letter from the insolvency practitioner detailing the new financial agreement agreeing to the same. This will only be granted if it does not prejudice your other creditors.
Getting a loan after an IVA
Generally speaking, a loan is possible after an individual voluntary arrangement. Once the procedure is completed, you are free to borrow again. However, in the first several months, your credit rating will be deemed poor. As such, it is likely you will have to wait a certain period before applying for a loan.
Similarly, if you find yourself in a financial emergency during your individual voluntary arrangement, we suggest speaking to your insolvency practitioner as opposed to obtaining a loan. Borrowing more goes against the terms of your IVA, and is very unlikely to be granted.
However, speak to your licensed insolvency practitioner as they may be able to arrange a payment break. If this is enabled, you can suspend payments for a few months and use this cash for an emergency.
Obtaining a mortgage after an IVA (also during)
Finding a suitable mortgage after your IVA can prove challenging. A mortgage is a huge financial commitment and, as such, you will have to improve your credit score before applying. We suggest a specific credit-builder card to do so.
They tend to have higher interest rates, but are a great stepping stone towards better credit. A new mortgage is possible, but you are likely not eligible for 100% of promotional offers. A remortgage, on the other hand, is easier as you will already have the trading history with the lender, which is likely to benefit during the application stage.
For those looking to gain a mortgage during an individual voluntary arrangement, you will struggle. As mentioned above, you cannot take out credit of more than £500 during the procedure and you will need written approval from the insolvency practitioner. Likewise, it will be difficult to find a lender when going through an IVA.
It’s also important to note that you may be required to remortgage your property during the process. If you have equity tied up on your property, a remortgage may be possible six months before the end of the IVA to pay a lump sum towards the total amount owed.
Six years after an IVA
Once the six year mark has passed, any defaults and the IVA will no longer be listed on your report. However, this doesn’t instantly mean your credit rating is clean, and you will be able to obtain a loan or car finance etc straight away. You are, essentially, starting from scratch with your credit rating and you will need to build credit that is attractive to particular lenders.
How to get back on track
An IVA can prove a challenge, as you will be living within your means for six years. Even if you happen to complete your IVA early, the procedure will still show on your record for a period of six years. However, there are ways in which you can begin to get back on track:
- Stick to your budget
- Keep checking your credit report for improves
- Opt for a credit-builder card to take the first steps
- Start saving as much as possible and put aside money for after and during the IVA
Ultimately, the key to building your credit rating is to do so slowly, consistently and as low risk as possible. At all costs avoid going back to living on credit, paying only minimum payments.
Make sure you pay your credit card off in full every month. If you believe you need some financial advice in this area , speak to our BusinessRescueExperts today for free, confidential advice.