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Which is worse for your credit score – bankruptcy or IVA

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Which is worse for your credit score – bankruptcy or IVA

Which is worse for your credit score – bankruptcy or IVA

Considering going bankrupt but worried about the affect it will have on your credit score? You may be surprised to learn that it will be no different than if you do an IVA.

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Credit score – the difference between bankruptcy and IVA

In reality, your credit score will be equally as badly affected whether you go bankrupt or use an IVA.

Going bankrupt will of course have a negative affect on your credit score. A record of the bankruptcy will stay on your credit file for 6 years. This will mean your credit rating significantly reduces. It will become much more difficult to borrow during this period.

But if you start an IVA, the exact same thing will happen. A record of your IVA will be added to your credit file and also remain there for 6 years. This will have exactly the same affect as if you had gone bankrupt. Your ability to get credit during this time will be reduced by the same amount. There is really no difference between the two.

Arguably you can actually start to improve your credit rating faster after going Bankrupt. There is more information about this below.

Worrying about getting a mortgage in the future? You will have exactly the same options whether you go bankrupt or use an IVA. Which ever solution you use, you will have to wait for 6 years before a high street lender will consider you.

How long do you have to wait before you can use credit after bankruptcy?

Your credit score will not return to 100% normal until the record of you going bankrupt has come off your credit file. In exactly the same way as if you had started an IVA, this will happen 6 years after the date you went bankrupt. It is automatic. There is nothing you can do to get the record taken off your file any faster.

However, you will only actually be bankrupt for 1 year. After 12 months, you will be discharged. You can then start to repair your credit score.

There is nothing you can do to improve your chances of getting a high street mortgage any earlier. But as soon as you are discharged, you are allowed to borrow again. This means you can take immediate action to improve your rating and work towards being able to get credit such as store finance or a bank overdraft.

This is totally different to an IVA which lasts for at least 5 years. You are not allowed to borrow more while the Arrangement is in place, and can’t start improving your credit score until it is completed as long as that takes.

It is possible to continue using some forms of credit while you are bankrupt. For example your mobile phone contract and utility accounts.

What can you do to improve your credit score after bankruptcy?

One the day you are discharged, your credit score will not improve much on its own. The record of your bankruptcy will still be on your file. But if you want to speed up the repair process, there are is a key thing you can do. Start using credit responsibly.

Most credit applications you make will still be rejected. However, you should be accepted for a credit repair credit card.

These credit cards are available for free from a number of lenders (for example Aqua or Capital One). They are designed for people who have a poor credit rating. Once you have the card, use it for small regular expenses such as buying petrol or shopping. Make sure you repay 100% of the balance each month. If you don’t you will be hit with high interest charges.

Using the card like this will help improve your credit score in two ways. First, continually paying off your card each month shows responsible use of credit. Second, the more unused credit you have on your card, the more likely other creditors will view you as a good credit risk.

Repairing your credit score will take time. You may have to use a credit repair credit card for 12-18 months or more before you can apply for a bank overdraft. However, it will improve far more quickly than if you had been in an IVA.

Want to know more about how your credit score will be affected before you decide to go bankrupt? Give us a call (0800 044 3194) or complete the form below.

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James Falla
I have been advising people on how to solve their debt problems for over 20 years. During this time I have helped many people go bankrupt. I am an FCA Approved Person and the Managing Director of Wilmott Turner Financial Services (owner and operator of Bankruptcy Expert
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