Will I pass a credit check with an IVA?

Find out if you can pass a credit check when you have an individual voluntary arrangement (IVA), what a credit check is and when one might take place.

What is a credit check?

When a business wants to know how good you are at managing your money, they might carry out a credit check.

There are two kinds of credit check – soft and hard.

Soft credit checks

These are initial searches on certain basic information on your credit report. Businesses might perform a soft search to decide how successful your application would be without fully examining your financial history.

Only you can view soft searches on your credit report, so they don’t affect your credit score and it doesn’t matter how many there are.

Hard credit checks

These are more detailed searches carried out by businesses who want to see how you’ve managed your finances in the past.

Any business that checks your credit report can see all the hard credit checks made. Too many hard credit checks over a short period can negatively impact your credit score for six months.

Which businesses carry out credit checks?

Lenders

When you apply for a loan or credit card, the lender will run a credit check to see how well you’ve managed borrowing in the past. They may use the information on your credit report to decide whether to lend to you, how much to let you borrow and at what interest rate.

Banks

If you apply for a new account, the bank may run a credit check to confirm your identity and assess the risk of accepting you as a customer.

Mortgage providers

If you apply for a mortgage, the provider will check your credit report to help them decide if you’re likely to make your repayments in full and on time.

Landlords and letting agents

If you’re looking to rent a new home, the landlord or letting agent may run a credit check to confirm your identity and assess whether you’re likely to make a reliable tenant.

Utility companies

You generally pay for gas, electricity and water after you’ve used it. That means, when you set up a new account, utility companies will check your credit report to see how reliable you’re likely to be when it comes to paying your bills. If you’ve paid late or missed payments in the past, they may set you up with a prepayment account.

Insurers

Insurers may confirm your identity by checking your credit report. If you want to pay monthly, they may also use the information on your credit file to decide how much to charge you.

Potential employers

Some employers might check your credit report as part of the application process. This is usually for roles where you’ll be handling a lot of money or where you’ll have a lot of responsibility.

Mobile phone companies

When applying for a mobile phone contract, the provider may want to check your credit report to see how much of a risk you pose when it comes to paying your monthly bill.

Debt collection agencies

When you take out credit, you agree to allow the lender to check the information in your credit report. If you fall behind with your repayments and your debt is passed to a collection agency, they retain this right. They may check your credit report to get an idea of your financial situation and help them decide the best way to collect the money you owe.

Government agencies

Some government agencies can also check information on your credit report e.g. to help work out child support payments.

Why would a credit check be carried out during my IVA?

The most common reasons why a business would carry out a credit check while you have an IVA would be if you:

were trying to take out additional credit
were looking to rent a new home
had moved home and were setting up new accounts with utility companies
had applied for a new job and it was part of the screening process

Can I pass a credit check with an IVA?

If you’re applying for additional credit

In most circumstances, we would strongly advise you against taking out any additional credit during an IVA and, at the very least, speak to your insolvency practitioner before doing so.

You should also be aware that you can only apply for a maximum of £500 before you need your practitioner’s written permission, or you risk your IVA failing.

Even if you apply to borrow less than £500, most lenders will be extremely reluctant to accept an application from someone with an IVA. Taking out additional credit includes things like applying for a new mobile phone contract.

If you’re looking to rent a new home

If you’re looking to rent a new home during your IVA, the landlord or letting agent may well check your credit report. If you have an IVA, they may be reluctant to accept you as a tenant. So, if you can put off moving until the IVA has dropped off your credit report, that may be a good idea.

But, if you have no choice but to move while the IVA is still showing on your credit file, there may be things you can do to convince a landlord or letting agent to take a chance on you e.g. offering to use a guarantor who would pay the rent if you were unable to or paying a larger deposit.

If you’re setting up a new account with a utility company

A utility company that sees you have an IVA on your credit report will accept you as a customer but they may insist that you have a prepayment account.

If you’re applying for a new job

Occasionally, during the screening process for a new job, an employer may want to check your credit file. You can refuse them permission to do this, but doing so may scupper your chances of getting the job. Your best bet may be to speak to your prospective employer about the financial difficulties you’ve had in the past and explain what you’ve done to get back on track.

When will my chances of passing a credit check start to improve?

Even after your IVA finishes, it may remain on your credit file for a while. This is because most IVAs last for five years but they stay on your credit report for six years from the date they’re agreed.

While the IVA remains on your credit report, it will be difficult to pass a credit check. Once it drops off, you’ll need to start from scratch building your credit score. Find out about steps you can take to start improving your credit score after an IVA drops off your file.