Does insolvency affect my credit rating?

If you’re considering claiming insolvency you may have concerns about how the decision will affect your credit rating.

Claiming insolvency is a way of protecting yourself from debtors and resolving debts that you don’t have enough money to pay.

Individuals, companies and partnerships struggling to pay their debts all have the option to claim insolvency.

Deciding to claim insolvency isn’t a decision that should be taken lightly though as it can have long-lasting financial consequences.

Before claiming insolvency, it’s important to know exactly what to expect and how the decision is likely to affect you in the future.

Once of the most significant areas that can be affected is your credit rating.

What is a credit rating?

Your credit rating is an analysis of your credit files. It provides prospective debtors with an idea of your credit history and your creditworthiness, helping them to build up a picture about whether you will be able to repay a loan should they lend you money.

Those with a good credit rating are more likely to be granted credit, whilst those with a poor credit history may struggle to be accepted for credit. This can affect your ability to gain a mortgage, credit card, vehicle on finance, or even a mobile phone contract.

Factors that can negatively affect your credit rating include missed or late payments, opening a lot of credit accounts in a short space of time, being financially associated with someone else with a poor credit rating, and claiming insolvency.

How does claiming insolvency affect my credit rating?

Insolvency comes in many different forms including bankruptcy and individual voluntary arrangements for individuals, and company voluntary arrangements, liquidation and administration.

No matter which form your insolvency takes, a record of it will show on your credit file for the following six years.

During the years following your insolvency claim you are likely to see your credit rating drop significantly.

How long your credit rating is likely to be affected for will depend on the type of insolvency you entered, as different forms of insolvency last different lengths of time.

When you finish making payments on your insolvency you are marked as discharged. The date that you are discharged should also be marked on your credit file, and in the case of bankruptcy this can be within just one year of claiming insolvency.

So, although the insolvency will be reported on your file for six years, lenders may take into consideration the amount of time that has passed since you were marked as discharged.

Once the insolvency’s expiry date has passed, the account is not removed from your credit file, instead, it is marked as having defaulted.

Defaulted accounts remain on your file for six years, so they may still appear even after your insolvency is no longer visible on your account.

Whilst you are going through insolvency, and in the years that follow, it is likely to be very difficult to find lenders that will accept you for credit.

For more help or advice with personal insolvency or company insolvency, get in touch with our team of experts here at Irwin Insolvency, by calling us for free on 0800 2545122.