Insolvency and its effect on your credit score

Posted by Tom Blandford in Dealing with Debt on 30 January 2019 - Tom is a Credit Analyst at checkmyfile

Contrary to the belief of some, insolvency is not a ‘get out of jail free card’. When you are declared insolvent, the entry remains reported for six years on your Credit File and will continue to pose a significant barrier to your chances of obtaining credit – even after the insolvency is discharged.

Insolvencies come in several forms, each with different criteria. The most well-known is Bankruptcy, which is often used as a blanket-term to describe all types of insolvency, but Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs) are also common varieties. All forms of insolvency will have a dramatic impact on your ability to take out credit, and in all likelihood you probably see your Credit Score decline as well for as long as they appear on your Credit Report.

How long will insolvency affect my Credit Score?

Each form of insolvency will last for different periods of time and as such are likely to differ in how long they will affect your ability to take out credit as well. IVAs are usually completed within 5 years, whereas protected trust deeds can be completed as soon as 3 years after the date of insolvency. In both cases, repayments are usually made for the same length of time as the time until completion, as both agreements are legally binding, defaulting on an IVA or protected trust deed can lead to the creditors petitioning for bankruptcy.

Both Bankruptcies and Sequestrations can be discharged after a year from the date of insolvency, at which point a copy of a discharge certificate issued by the court can then be sent to each creditor included in the bankruptcy order. Typically, this will mean that the relevant credit agreements will be marked as satisfied (or partially satisfied) along with the insolvency’s entry as discharged.

Despite the differences between each form of insolvency, they are all reported similarly to the Credit Reference Agencies. Each insolvency is reported for 6 years from the date of insolvency and are marked as discharged once its completion requirements have been met.

When applying for credit after insolvency however, the amount of time after an insolvency has been completed will make a big difference to lenders.

A common misconception associated with insolvencies is that the accounts included in the order are removed once the insolvency’s expiry date has been reached however this is not quite true. Once an account has included in an insolvency, lenders mark the accounts as defaulted, however there can be some variation in how soon lenders report the default status. Defaulted accounts are reported for 6 years from the date of default so there can therefore be a delay in the accounts dropping off a credit even when the insolvency they were included in is no longer visible on the file.

For as long as the Defaulted account remains on your Credit Report it will have a negative affect on your Credit Score, but not as much as the insolvency itself. Until an insolvency expires and is removed from an individual’s credit file, its negative influence also lingers on their credit score.

When an insolvency is discharged, it merely indicates that the repayments are no longer ongoing – lenders, landlords and employers would still usually be extremely cautious of accepting the application as the insolvency can still be considered evidence of a past unreliability keeping up with payments.

Once an entry is removed, it will not be visible to potential lenders nor will it be factored into Credit Score calculations.

Can I take out credit with Bankruptcy or an IVA?

While you have an active insolvency you can still take out credit, but may need to get permission from your insolvency practitioner if you want to borrow more than £500. Depending on what you’re looking to borrow for, you might find that the number of places willing to loan money is small at best.

While the insolvency is active, most lenders are likely to take this to mean that you are still undergoing a period of financial difficulty and decline your application on that basis.

Originally posted 17/11/2016, updated 30/01/2019

Does a Debt Management Plan Affect Your Credit Rating?

If you’re feeling increasingly overwhelmed by debt and aren’t sure what steps you can take next, the most important thing to remember is that there is plenty of help available and different solutions designed to get your finances back on the straight and narrow.

Published on 18 Jun 2019 by Kevin Pearce

Full Article

Late Payments & Defaults: What's The Difference?

When a lender checks your Credit Report, one of the most important elements it considers is payment history as reported to the Credit Reference Agencies. On a perfect applicant’s Credit Report, every credit account would be reported with a clean payment history, indicating that they are a low risk to the prospective lender, but in the real world this isn’t always the case.

Published on 23 Apr 2019 by Tom Blandford

Full Article

Do I Owe a Debt If It's Not On My Credit Report?

Information that appears on your Credit Report should (in most cases) follow a fairly predictable lifecycle. But don’t think that if an unpaid debt no longer shows up, you’re no longer responsible for it.

Published on 21 Apr 2019 by Tom Blandford

Full Article

Do I Have a Default? How to Find Out

For lots of lenders, coming across a Default on your Credit Report is a troubling sign. It’s certainly more serious than a missed payment or arrears on your file, which are likely to have less of an impact on your chances of being approved. A Default represents a key moment in the eyes of a lender: it shows that on a previous credit agreement you stopped being a borrower and became a debtor.

Published on 29 Mar 2019 by Jamie Mackenzie Smith

Full Article

Do I Have a CCJ? How To Find Out

If you have a County Court Judgment (CCJ) in your name, it can have a serious impact on your Credit Score and ability to borrow for the entire time it is active, as well as potentially affect the outcome of the checks carried out by prospective employers, landlords and insurers.

Published on 26 Mar 2019 by Jamie Mackenzie Smith

Full Article

How Bankruptcy Affects Your Credit Rating

In terms of negative information that could appear on your Credit Report, evidence of bankruptcy or other forms of insolvency is about as serious as it gets and it’s likely to adversely affect your ability to take out new forms of credit for a considerable amount of time.

Published on 7 Mar 2019 by Tom Magor

Full Article

Can you go to prison for debt

The short answer is: yes, you can go to prison for debt, but only if you fail to pay your council tax, any magistrates fines, TV license or fees relating to a motoring offense, and even then there are plenty of methods that are usually tried before a prison sentence is carried out.

Published on 22 Aug 2018 by Barry Stamp

Full Article

Northampton Court CCJ – Why is it on my Credit Report?

If you’ve been issued with a CCJ, chances are that it could appear on your Credit Report as having come from Northampton County Court Business Centre (CCBC), even if you or the claimant have no ties with Northampton whatsoever.

Published on 31 Jul 2018 by Jamie Mackenzie Smith

Full Article

What Happens When You Miss a Payment?

Late payments are a reasonably common entry on Credit Reports. They can occur against all kinds of credit agreements: everything from mortgages to store cards and unless you have a Direct Debit set up to make repayments automatically each month, you’re reliant on remembering to physically make your repayments each month. For a lot of people, this is where mistakes happen.

Published on 6 Jul 2018 by Kiah Phillips

Full Article

If I Pay My CCJ Will It Go Away?

2017 saw the highest number of County Court Judgments (CCJs) issued in England and Wales since records began in 2005, according to official figures by Registry Trust. That means it’s more important than ever to make sure you know what to do if you get issued with one, and how to prevent one appearing on your Credit File in the first place.

Published on 23 May 2018 by Ben Ryland

Full Article


We are rated number 1 for customer service on