How to clean up your credit after an IVA

Thursday, 18 August 2016
After a DMP (Debt Management Plan) or an IVA (Individual Voluntary Arrangement), you will discover that your credit score is badly affected, which will have an impact on your future ability to secure credit when it comes to everyday things such as renting a house, getting a mortgage or just taking out a mobile phone contract.

So how do you clean up your credit after taking on a debt solution? Well, first you need to understand the implications taking on an IVA or DMP has on your credit score.

DMP: A DMP itself won’t show up on your credit file, but any defaults such as missed or reduced payments can be recorded by your creditors. As a DMP typically involves reduced payments to your creditors compared to what was originally agreed, a default could be recorded at any point during your plan. These defaults then sit on your credit record for six years, which can actually have more impact on your credit score than other debt solutions. PayPlan’s website notes that a DMP is not a form of insolvency, therefore creditors still have the power to add charges and interest, which could impact your ability to pay back your debt.

IVA: The effect that an IVA has on your credit rating will depend upon whether you complete it within six years or not. If completed in less than six years, the public record will state that your IVA is complete, yet only after six years from the date of approval will the marker will be removed from your credit record.

To begin cleaning up your credit, it’s important to have everything smoothed out with your IVA service and creditors. Check the following things are in order and correct:

  • Your creditor has the correct default date.
  • Your creditor has marked the debt as satisfied once the IVA is complete.

If these things are wrong it will require some phone calls and negotiation on your part but it’s important they are corrected to ensure they do not impact your credit score.

Once you are sure all the details regarding your DMP and IVA are correct, it’s time to begin earning positive marks on your credit score. First, ensure you are on the electoral role and that all of your personal details such as your address are correct with important credit reference agencies – Experian, for example.

Now, and this might sound a little risky considering you’ve just removed debt from your life, it’s time to take on a small amount of credit. The thing about a credit score is you need to owe and pay back money to improve it. However, it is important you do not take on any more credit until you have cleared any mistakes from your report and that the amount you owe does not exceed your financial limitations.

Many people take out a low interest credit card and use this to perhaps purchase their petrol for the month. At the end of the month they clear the debt and this in turn boosts their credit rating. If you want to boost your credit rating even faster, a card with a high interest rate is preferred and as long as you pay this off in full every month you shouldn’t accrue any additional charges or debt. It’s all about proving to lenders that you are able to borrow money responsibly, which is why you should only spend what you can afford to pay back - taking on this credit should only be for the sole purpose of improving your credit score.

Improving your credit rating score after a DMP or an IVA takes time. It is not an overnight process. But once you have your finances down to a fine art you should be seeing your score go up!