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If I Have Been Debt-Free For Five Years, Can I Get Finance?

by on September 18, 2012

in FAQs

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As soon as many people pay off their debt, they look for new credit. Experts caution against overspending, especially for consumers who have recently gotten out of debt. The last thing a former debtor needs is to get back into a negative financial situation. However, for debtors who have learned their lesson, credit opens the door to being able to purchase big-ticket items like cars and homes.

It will be difficult to get approved for additional credit immediately following completion of debt management plans, Individual Voluntary Arrangements (IVAs), and other debt relief methods. Getting new credit following bankruptcy can be particularly troublesome because bankruptcy is the most severe answer to debt problems, reserved for only those who have no hope of repaying debts in a traditional manner.

Even though they may involve repaying debt in full, informal arrangements and debt management plans alter original agreements with creditors so they negatively impact credit rating. IVAs are noted on the Individual Insolvency Register, which is an online database that credit reference agencies use to update credit rating. It will be difficult to purchase on credit, obtain loans and other credit, or open bank accounts with an IVA in place. The typical IVA lasts for up to five years but remains on the credit file for six years.

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Administration Orders last until debts are repaid in full (or in part if a Composition Order is put into place) and are listed on the public Register of Judgments, Orders, and Fines. The three credit reference agencies retain details regarding Administration Orders for six years. Debt Relief Orders typically cover a 12-month period and are included in the Individual Insolvency Register. The DRO record is removed three months after the DRO ends but credit reference agencies maintain DRO records for six years. If a Debt Relief Restrictions Order is imposed, restrictions may continue for up to 15 years.

A bankruptcy is advertised in official records including the Individual Insolvency Register. Though it is usually discharged after one year, it is listed on the credit file for six years. In addition, the bank and mortgage holder are informed of the bankruptcy, which can make it difficult to open a new bank account, take out a loan, or refinance. Even getting new insurance may be a problem, as insurance providers are notified.

The longer an individual has been debt-free, the easier it usually is to get credit. Therefore, even though credit reference agencies maintain records of debt management techniques for a period of six years, it may be possible for consumers using them to get credit after three or four years. Initial credit offers are usually not attractive, featuring low credit limits and high interest rates.

Test the waters several years after becoming debt-free by applying for a credit card or small loan. Avoid submitting multiple credit applications within a short period because this will negatively affect the credit file. Begin using a small amount of credit responsibly, building up to a car loan or mortgage after the debt management technique is removed from credit history.


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