What is a credit check?

A credit assessment, also known as a credit inquiry, involves a lender examining your credit background to evaluate your financial management skills in the past. Understanding the distinctions between soft and hard credit inquiries is crucial when applying for credit whilst in an IVA.

A soft credit inquiry occurs when you review your own credit report or when a lender conducts a high-level examination of your financial background. This type of inquiry is documented but leaves no visible trace on your credit file, thus having no impact on your credit score.

In contrast, a hard credit inquiry entails a more thorough investigation of your financial history and is typically conducted when a lender wants to assess your repayment history on borrowed funds.

Various entities, such as utility companies, landlords, letting agencies, phone companies, and even potential employers, may perform credit assessments to gain insight into your financial situation. The data is obtained from the records maintained by the UK’s three primary credit reference agencies (Experian, Equifax, and TransUnion), which typically provide a comprehensive overview of your entire credit history and financial dealings.

What does a credit check show?

A credit assessment can uncover various aspects of your financial history and personal information, such as:

• Full name and date of birth
• Present and previous addresses
• Voter registration status
• Existing overdraft facilities
• Active credit accounts (including credit cards, mortgages, and payday loans)
• Public records (e.g., County Court Judgments, IVAs)
• Instances of fraud or identity theft

Why would a lender perform a credit check during an IVA?

There are multiple factors that may prompt a lender to conduct a credit check on your financial situation while you are in an IVA. The most prevalent reason is if you attempt to acquire additional credit before completing the arrangement.

It is essential to understand that during your IVA, you are only allowed to obtain credit worth £500 or less. Failing to adhere to this rule could lead to the failure of your IVA. If you require more credit during your IVA, an Insolvency Practitioner can offer expert debt advice and may have the ability to adjust your payment plan or decrease your monthly payments through a payment break.

Can I rent a property with an IVA?

One possible reason for a lender to examine your credit during an IVA is when you apply for a rental property. It may seem extreme, but landlords or letting agencies frequently conduct credit history checks before allowing you to sign a tenancy agreement and move in. This can pose an issue if you are in an active IVA, as some landlords or letting agencies might be cautious about individuals with past or ongoing debts, raising concerns about your capacity to pay rent in full and on time.

However, no regulation prohibits tenants with an active IVA from renting a property, and the final decision is always at the landlord’s or letting agent’s discretion. It’s also important to note that even if your application is approved, the landlord may ask additional questions or, in some cases, require a higher security deposit for increased peace of mind.