Does A Repo Affect Your Credit?

Does a Repo Hurt Your Credit?

It can be extremely stressful and embarrassing when you find out it is time to surrender your car to the repossessors. You are probably also concerned about how your credit score is going to be affected as well as how you will be able to secure loans for other assets in the future given that you have lost your car. This guide will highlight how a repo impacts credit, the extent of credit score drop, and what to do when a repo is done on your car.

How Repossessions Affect Your Credit Reports and Scores?

When your car is repossessed, this event will be reported to the credit reference companies and included in your credit reports shortly. The company that financed your vehicle will relay the repo to the three leading consumer credit agencies, Equifax, Experian, and TransUnion. This goes on your credit reports as a voluntary surrender or a repo. Both of them are thought to be ‘minus’ signs.

Since a repo signifies that you were somehow unable to meet your payment obligations, it qualifies as a derogatory mark. Negative remarks affect your credit standing negatively. Your scores are derived from the payment histories, amount owed, length of credit history, types of credit, and new credit inquiries. The like repo is included in your credit records and demonstrates that you were not able to meet the obligations that came with credit.

After a few months of the repossession, you will find that your credit rating has also gone down. The extent to which they reduce depends on the credit score you have and your credit history. In general, people tend to observe their scores decreasing from 100 to 200 points after a vehicle repo. For instance, if the credit rating before the event was good or excellent, the resulting decrease is often less for those than for individuals with fairly bad credit.

A repo can remain in your credit reports for up to seven years from the time it was done. Its effect on your scores reduces over time, in the duration of seven years.

How Low Could My Scores Drop?

The variation can be in a range of 100 to 200 points although it can also slightly differ from your experience. To determine how your credit scores may change, check for factors like.

Current credit utilization ratio: The reason is that having many balances near the credit limits normally reduces the scores whenever negative items appear.
The number of other negative marks: If you have defaults, along with the repo, or a history of check bounces, the repo worsens problems.
History length and mix: Are you using various forms of credit for many years without causing problems? Well-established history reduces the impact of low scores.
Several recent inquiries: Many new credit applications hurt scores.

The scores may go down more or less than the average depending on your history after the repossession. In any case, a repo is generally followed by a significant amount of point reduction. It is one of the most serious entries in credit reports. However, even if there is a decline, you can make a comeback if you properly handle credit matters in the future.

Looking for ways how to rebuild credit after repo? Click here to learn more about how you can start the process of rebuilding your credit.

This may seem very hard and quite exhaustive, but it is possible to rebuild your credit once it has been affected by a repo. Here are steps to take after a vehicle repossession to improve your scores.

Pay owed balances: Pay off all other accounts and try to make at least the minimum payment every month.
Pay down balances: Allowing credit card balances and loans to be active and at or close to their limit will limit the ability of scoring to come back. Pay them down.
Limit new credit applications: All of them trigger hard inquiries on the reports which can reduce the scores for a while. Minimize the use of credit as much as possible or avoid applying for credit as often as possible.
Ask for goodwill deletions: You can write letters of goodwill requesting lenders and credit bureaus to remove the repo. They are sometimes willing if the default was an isolated incident.
Dispute errors: It is also important to check your credit reports for any information related to the repo and ensure it is completely correct. Challenge any errors with the bureaus.
Become an authorized user: You can request other people who have good credit standing and are close to you to add you to their credit card or loan account. It enables you to capitalize on their good track record.
Improve credit mix: When rebuilding credit, strive to have at least three credit cards and three active credit lines such as installment loans and credit consumer accounts. Having several types of credit is beneficial for scores, as seen from the above-discussed factors.
Let time pass: However, newer reports are over-proportionally detrimental to scores. But as the repo ages, it loses its power and effectiveness as long as you can handle credit appropriately now.

Applying for Secured Credit Cards

Getting a secured credit card is also a good way to recover from the effects of a repo on your credit. Secure cards are similar to standard credit cards, though the user has to deposit cash that serves as the credit limit for a secured card. It is far easier to be approved for than other credit products such as car repossessions among others. Secured cards are quite numerous and available from various reliable issuers. This means that once you are through with the secured one owing to responsible usage, you can graduate to a standard unsecured card in as short as a few months.

How Repossession Works?

To decipher credit impact and methods of rebuild, it is important to know what leads to repo and what the process involves. Repossession happens when one fails to repay the money on a secured asset and the creditor takes over the asset. They include vehicle repos which are among the most common.

Here is how car repossessions typically happen.

For instance, you are unable to make your monthly car loan installments for several months consecutively. This may happen in several months or years.
The financing company sends you letters telling you to pay the amount in arrears or else suffer the loss of your vehicle.
If you do not pay, then the creditor hires a repossession company to take your car away from you. It could take it from your driveway without prior warning in most of the states.
The car is then sold at an auction and the money generated is used to pay off the remaining balance of the loan.
If the car is sold at a price lower than the amount of money you owe to the creditor, the creditor can sue you for the remaining balance on the defaulted loan.

As this has been demonstrated, besides the credit impact, you lose your car when it is repossessed because of non-payment. It is a prudent move to ensure that you maintain your auto loan and avoid this inconvenience and credit score deterioration.

The Takeaway – Expect a Decrease But You Can Recover

Of course, having your vehicle repossessed is a blow to your credit status and scores, which are more critical than your credit report. But that does not mean that you will have to continue to receive a black mark on your credit history for the rest of your life just because you were late in paying your bills. You will likely see your credit scores decrease from 100 to 200 points initially. However, if you make positive efforts towards repairing credit, the scores are likely to recover over several years in the future. Pay all other bills on time, maintain low utilization, avoid new credit, and consider secured cards. Other positive behaviors such as practicing responsible credit will help to reverse the effect of the repo in the long run. Therefore, although rebuilding may take a while, credit can be rebuilt even after repossession.

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