The Effects of Insolvency on Credit Rating

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Insolvency is a serious matter for most businesses. No business person wants to end up having an insolvent business. Insolvency simply means being unable to pay all your company’s current and future obligations. It can be measured by comparing your assets and liabilities. Once your assets exceed your liabilities, you are in the safe zone. But if it is vice versa, then your business is undoubtedly at a high risk of insolvency.


How does insolvency affect my Credit Rating

Before knowing the effects of insolvency on your credit rating, let us first define and understand what Credit Rating means.

Credit rating basically means the rating given by a certain debtor’s previous creditors. It is a measurement of how well you are on paying your debts. The higher the rating, the higher probability you have of getting an approved credit application.

Once you fill out a form for insolvency, the arrangement will be recorded on your credit report. You may file for an IVA if you are struggling with paying your debts. And since the details will be uploaded to your records, it may take up to a longer time before it will be removed from your file.

An IVA or Individual Voluntary Agreement should be set up by an insolvency practitioner or עורך דין חדלות פירעון like Adv. Maor Levi. It is a legally binding agreement between a debtor and a creditor with regards to the payment arrangement over time. If you have a recent IVA, you may find it difficult to get approved for a loan since your creditors will have an impression that you are not good at paying what you owe. That is why a credit rating is essential because it is the most considered factor creditors seek with an applicant.

How long does insolvency affect my credit rating

Your insolvency status will be recorded on your credit report for up to six (6) years or until you’re fully discharged. Since most lenders would base the approval of your application on your credit record, you will probably be going to struggle in borrowing additional money from other creditors. However, if someone will approve and lend you a certain amount, they might charge you with a higher interest rate because you are a high-risk customer.

How to rebuild my credit file after being insolvent

Although insolvency or bankruptcy means a significant loss in every business, there are still ways that you can take in short-term debt applications. You can request for a copy of your statutory credit report to make sure that all your credit details are precise. You can also put a brief and valid explanation as to why you had an IVA from your previous creditor.

Moreover, if you are eyeing for a long-term borrowing, it is crucial to prove to your lenders that you are a responsible debtor. That you only had an IVA because it was a sudden crisis and not because of your recklessness. You can easily prove it once you are done paying all your outstanding liabilities.