Does A Car Repo Affect Your Credit?
Is getting your car repossessed bad for your credit?
Having your car repossessed is quite embarrassing and stressful for anyone who has had to go through the experience. Apart from losing your vehicle, you may be concerned with how this may affect your credit rating and credit history. Therefore, the act of car repo does it impact your credit rating? The short answer is yes. If your car is repossessed, your credit will be affected in the following ways:
The Repo Will Help to Improve the Credit Report of the Repo.
First of all, the repo will be reflected in your credit history. The repo activity must be reported to the three prominent credit reporting agencies including Experian, Equifax, as well as Transunion. This reporting is usually done within 30-60 days from the repossession This reporting is usually done within 30-60 days of the repossession. The repo will be reported to the credit bureaus and placed in the ‘Accounts In Derogatory Status’ segment of your credit report.
In this part, the lender should record the outstanding balance amount that was due on the car at the time of repossession and should mark the account as ‘voluntary surrender’ or ‘repossession’. Thus, you cannot cloak the fact that the vehicle was repossessed from future lenders by analyzing your credit score.
This will cause your credit score to drop.
Not only does it result in the repo appearing on your credit report, but it will also lower your credit score. How it drops will depend on your credit situation and credit history that you possess and that is reflected in the credit reference bureaus. In general, a person can expect the score to drop to at least 100 points after car repossession. For those who had fair or bad credit before the occurrence of the event, the score may drop below 500.
The extent of the damage depends on factors like.
- This step refers to the length of your credit history.
- The sum of all your current credit obligations
- Several other negative items on your report
Depending on the total credit history, if the repossessed auto loan constituted the bulk of the report, the effects could be even worse on your score.
You Will Be Classified As Seriously Delinquent
Not only does a repo lower your score but when the credit report is pulled, they are made aware of your poor status. When a debt is turned over to a collection agency or written off by a lender, it is usually reported on the credit report labeled as 30, 60, or 90 days past due. Repo activity jumps past those lesser late statuses to the worst category: In the same vein, seriously delinquent means that the loan is at least 90 days past due.
Being listed as seriously delinquent informs other lenders that you are a very high-risk borrower. This is a big problem as it becomes almost impossible to get a new line of credit or loan again until the repo ages off your credit report.
The Repo Stays On Your Report For Years
Further, a repossession is not easily erased from a credit report and this does not augur well with most people. The negative items should not be on the report for more than 7 years as prescribed by the Fair Credit Reporting Act before getting deleted. For a car repo, the 7 years begins at the time when the actual repossession was done on the car.
This means that, unlike other debts, the defaulted auto loan will continue to hurt your credit profile for several more years before it gets off the report. Fortunately, the effects are not as drastic over time. Nevertheless, it may take up to 6 years for a debtor to find it challenging to obtain credit.
Your Deficiency Balance Counts Too
The last factor that we have under repos that contributes to them affecting your credit is deficiency balances. In many states, the borrower is still liable for any amount that remains unpaid after the car has been repossessed and sold at an auction to the lender. This remaining unpaid loan balance is referred to as a deficiency balance.
If there is a deficiency balance on the charged-off auto account, the lender will also typically submit this total amount to collections. This means that you have two notations affecting your credit score – the repo notation and a collections account for the deficiency.
Tips To Rebuild Credit After Car Repossession
It is now high time that you found out how a repossession affects your score and report so that you can begin fixing your credit. If you have a good score, getting an apartment or even a mortgage is not a problem at all. Here are some ways to recover from a car repo.
A proposal to pay off any deficiency balances.
Call all collection agencies that report deficiencies on your report and clear all the account balances. This will prevent further harm from those items.
Dispute Inaccuracies
when reviewing the credit reports obtained from the three credit bureaus, look for any inconsistencies regarding the repo listing. In case you find mistakes such as errors in the balance owed or date, write the dispute letters presenting proof documents.
Become An Authorized User
get a relative with a good credit score to include you as an authorized user in their credit card account. This makes their positive payment history begin to work towards rebuilding their credit score as an authorized user.
Avoid New Credit Applications
refrain from making an application for financing from dealers in subprime who offer auto loans for buyers with bad credit. Some new accounts and inquiries appear too risky for the company.
Pay All Bills Early
automate payment by linking your bank to pay every bill at the right time without any delay. Making utility payments, phone bills, rent, etc on time is also a sign of responsibility. It can be wise to pay bills as soon as the statement arrives in a given month.
Limit Credit Card Use
do not utilize their cards to the limit and balance credit cards from one month to another. If possible, it is best to keep balances at less than 25 percent of the total credit limit on the cards.
Check Credit Reports
go to annualcreditreport. com and get your free reports each year. Keep track of the things lenders observe and keep on observing the score’s recovery.
Wait It Out
more important than all that, one should simply wait and let time smooth the wound left by the old default. Coded as the repossession gets older beyond two years, the impact lessens significantly if you show sound fiscal responsibility in handling debts and payments.
Does A Car Repo Affect Your Credit Conclusion
In conclusion, getting your car repossessed is a huge financial blunder that has serious credit repercussions. It results in your credit score dropping possibly more than 100 points, your credit report remains unfavorable for years, and deficiency balances are sent to collections when they are seriously overdue.
Although it requires effort and patience, the negative impacts of credit-harming effects can be alleviated by avoiding the acquisition of new debts, paying bills on time, monitoring the credit reports regularly, and waiting for the repo harm to expire within the maximum seven-year period. Thus be patient, continue to practice good behaviors regarding your money and the process of credit repair becomes manageable even when there has been a car repossession.
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