Can I get a credit card if I’m still in an IVA?
An IVA is a legally binding debt solution. It’s a form of insolvency that can be used as an alternative to bankruptcy when you can’t afford to repay the debts you already have.
You may find it difficult to borrow credit when you have an IVA because lenders are likely to see you as high risk. Lenders want to know they will get their money back. Plus, they won’t want to put you into any further financial difficulty.
If you want to borrow less than £500 credit, then you don’t need to ask permission from your Insolvency Practitioner. You should consider whether this is the best option for you as borrowing more money could lead you further into debt. Plus, you don’t want to run the risk of not being able to afford your priority bills or monthly IVA payments.
What credit can’t you take out?
If you want to borrow more than £500 during your IVA, you’ll need express consent from your Insolvency Practitioner first. This is because you would be giving your new creditor preferential treatment over your existing creditors included in your IVA. Borrowing includes:
- credit cards
- personal loans
- payday loans
- loans from family or friends
These types of borrowing are only likely to be accepted by the Insolvency Practitioner in exceptional circumstances, such as in a financial emergency. Borrowing more than £500 without getting consent from them first would be a serious breach of your IVA and could lead to it being cancelled. If your IVA fails, you will owe your creditors the full remaining amount and you will need to work out a new repayment plan with them.
Should I wait to apply until after an IVA?
Six years after the start date, the IVA will drop off your credit report. This may help to improve your chances of getting finance in the future. But it may take you a while to rebuild your credit score and there is no guarantee of acceptance.
If you want to borrow more than £500, you’ll have to wait until after your IVA, unless you get permission from your Insolvency Practitioner. Even if you get permission to borrow credit you may find it hard to get accepted.
Each lender uses their own criteria, and some are more lenient than others. Generally speaking, they will check your credit history when you make an application to borrow. They’ll see that you have an IVA because these are listed on your credit file and the public Individual Insolvency Register. This means that they might be reluctant to lend to you and you may face higher interest rates.
Remember, making multiple applications in a short space of time can damage your credit history further. You can use a QuickCheck tool to see if you are eligible for a credit card without damaging your credit history – before you apply.
Once you’ve got to the end of your IVA, you’ll be given a certificate of completion by your supervisor. You should make several copies of this and forward one to each of the three main credit reference agencies in the UK (Experian, Equifax and TransUnion) and ask them to update your credit history.
You can also check your credit report for free (for life) with our partner, CredAbility, to see what your credit score is now that your IVA has been completed. You’ll also want to get in touch with your creditors to confirm that you’ve completed your IVA and ask them to update your records.
Remember, an IVA will stay on your credit history for six years from the start date, before it drops off. So the impact your IVA will have on your ability to be accepted for credit will partly depend on how long ago the start date was.
If your IVA lasted for five years, then it will take a further year for the IVA to automatically drop off your credit history. If your IVA was extended and lasted six or more years, by the time it comes to an end, the IVA itself should already be off your credit report.
Once your IVA has dropped off your credit history you can start to apply for credit again. Your credit history may still be thin but there are lenders who specialise in finding loans, mortgages and credit cards for people who have struggled to manage credit in the past, or who have a thin credit history. At Ocean, we work with such lenders to help those with less-than-perfect credit histories.
Are there alternative solutions available?
If you are worried about being able to afford your IVA repayments alongside your monthly living costs, there may be other alternatives to getting a credit card during an IVA.
Speak to your Insolvency Practitioner (IP)
Before taking out credit or going down an alternative route, it’s best to speak to your Insolvency Practitioner. They will be able to advise you on which options are available for you and help you come to the best decision for your financial situation.
For example, if you are unable to meet your living costs and the agreed monthly repayments for your IVA or you need a bit of extra money for an essential purchase, they may be able to negotiate with your creditors in order to reduce the size of your monthly repayments. They can also ask for a payment holiday for you, which gives you a break from your payments for a period of time. It’s important to note that if you take either of these options your IVA will take longer to pay off.
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