For some of our clients, bankruptcy or an IVA is the only solution to their debt problems. We work with them to make sure they understand how to come back from a bad credit history and ways they can improve their score.
The most regular questions we get asked are:
- What will happen once my bankruptcy or IVA has ended?
- What on-going effects will I experience?
- Will I be able to get credit?
- How long for things to be “normal”?
We’ve set out to answer these questions in today’s blog…
Start with the facts – how is your credit rating affected during a bankruptcy or IVA?
As most people would expect, during the period you are bankrupt you are unable to obtain any credit without informing an organisation that you are bankrupt. This does limit your options and so your focus should be on building your credit history back up, with positive actions and payments.
For an IVA, similar provisions to be written into your proposals, preventing you from obtaining credit during the period you are in the IVA.
What happens once your bankruptcy or IVA has ended?
Once you are discharged from bankruptcy or no longer subject to an IVA there is nothing legally preventing you from obtaining credit. However, your credit rating will have had a negative hit and so obtaining credit won’t be as easy as before.
It’s likely that leading up to your bankruptcy or IVA, late payments or missed payments will have already damaged your score and so now is the time to try and improve it!
Credit Score – How long is it affected?
Your credit report will usually date back 6 years and therefore will detail any adverse credit, including any bankruptcy or IVAs.
Your score is something that can be repaired over a period of time, but there are things you can do to improve your score a little faster. This involves building a positive payment history with new creditors or with any accounts which survived the bankruptcy.
See our hints and tips below.
Hints and tips – how to improve your credit rating
- Firstly, ensure you are registered on the electoral roll (this bit is really important).
- Consider applying for credit but act wisely – don’t take out more credit than you know you can afford to repay.
- Before making a formal application for credit cards or store cards contact the provider and find out which reference agency they use and obtain a copy of your report from that agency. Find out what criteria they apply and whether your history will most likely result in a rejection of the application. By asking these questions it ensures you don’t apply for credit cards for which you don’t fulfil the criteria. An unsuccessful application can result in an adverse effect on your credit score.
- Don’t just make minimum payments against cards – repay in full on a timely basis if you can, or at least make big lump payments where possible.
- Always pay on time – late payments, or missed payments have a big effect on your credit score.
- Pay utility bills by direct debit and pay on time.
- Check your credit report has the date of any bankruptcy or IVA discharges detailed on it – if the date of discharge of bankruptcy is not detailed ensure this is amended.
- While the bankruptcy or IVA debts will still be listed on the credit report, you can check that the report states there is no outstanding balance – if this is not the case either raise a dispute with the credit reference agency or go back to the original creditor and get them to amend accordingly.
- Mortgage companies at this time are requesting a minimum of 3 years after your discharge from bankruptcy before considering a mortgage application.
- Make sure credit limits on any cards are at a satisfactory level but are not excessive – never borrow more than you can afford .