Does A Car Repo Hurt Your Credit?

Is Car Repo Bad for Credit?

It is quite embarrassing and stressful to have your car repossessed. Maybe you are concerned about where this will leave your credit score, especially, whether or not it will affect your chances of getting approved for a loan or credit card in the future. Below is a detailed lead on how car repossession impacts credit and what you can do about it.

The Effects of Automobile Repossession on Credit

If this happens and your car is repossessed, this will show up on your credit report which will reduce your score greatly. There are a few key ways that a repo can hurt your credit.

1. Payment History – A car repo directly impacts one of the components of the credit score calculation, which is timely payments. Delinquency of auto loan and car repossession shows that one has been unable to make loan repayments as agreed in the contract. This will affect your payment history and consequently reduce your credit score.
2. High Debt Ratio – If an auto loan amount is not paid and the vehicle repossessed, the unpaid balance is added to debt for credit scoring even if you do not have the car anymore. This increases your overall debt risk or the total amount of debt you are exposed to. That is why it is said that higher levels of debt may lead to a reduction in the credit score.
3. Credit Score Impact – A car repossession could reduce your credit score by over a hundred points or more. What is more important, the higher the initial score was before the onset of the incident, the deeper the decline. It is also important to note that the high credit score is reduced by a higher point compared to persons with a low credit score.
4. Repo Itself On Credit Report - The repo itself will appear as a negative entry on your credit report for up to seven years. This is not helpful in situations where you need a new credit or a line of credit from some other lender in the same period. Credit reports are run by several lenders to support the decision on whether or not to extend credit. Having more than one negative is considered to be an issue.

How Long a Car Repo Hurts Your Credit?

The exact length of time a car repossession affects your credit depends on a few variables.

• Type of credit report mark – Two basic credit report marks come up when reporting a vehicle repo. One is an account status change notification, while the other is an unpaid balance that is charged off by the creditor. The account status has less of a long-term impact compared to a charged-off balance which can remain in your credit profile for roughly 7 years starting from the time the credit bureaus report it.
• Payment of other credit facilities – Even if you have been repossessed the credit score can be rebuilt by making regular payments on other credit products that were not affected by the repossession. Good payment behavior over time assists in countering negative remarks or ratings over the long run.
• Credit reporting rules – Most types of credit mistakes can remain on your credit report for a maximum of 7 years. However, consumer finance laws permit credit bureaus to report a vehicle repossession after 7 years under special specified circumstances like bankruptcy filings.

Car Repossession Guide: How to Rebuild Credit Score After a Car Repossession?

Car repossessions result in a lot of credit deterioration in the short term that cannot be easily rectified in a single day. However, there are positive steps you can implement to help bounce back your credit over time.

• Surrender possession of the car – Consider surrendering your vehicle to the auto lender and learn whether you can still make payments on any remaining auto loan balance. To reduce the time the unpaid amount drags the credit lower, this debt must be cleared.
• Correct any information in your credit report – According to federal law, you are allowed to challenge credit report information that is inaccurate or untraceable. Information regarding dispute procedures is printed on the sites’ web pages as well as other literature distributed by credit agencies. Erasing wrong inputs also contributes to the enhancement of the obtained score.
• Get an authorized credit card user – Borrow a credit card from a friend or a relative who has good credit standing and has been using the card for some time now. Do not go for accounts that have more balance in them or the payments made are due for quite some time. In as much as the card history is reported by the issuer, the file that the issuer sends contains your information as an authorized user.
• Get a new line of credit and make timely payments – After some time has elapsed since the repossession, apply for a new credit card or a consumer loan. Make sure not to incur liabilities that you cannot afford to meet the payment for at the required time. Another way to balance the prior incident is to pay as agreed on the terms agreed between the two parties.

The Bottom Line

Dealing with car repossession exposes one to so many unpleasant financial situations such as; a damaging credit history that may take years to improve. However, with remorse and willingness to accept the consequences coupled with patience and time, you can rebuild your credit back to reach a point where in case you need to finance big purchases in the future you can be considered for reasonable rates and reasonable terms in the future.

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