Does A Repo Hurt Your Credit?

Whether a repo affects your credit depends on how the repo company processes the car’s sale, as well as the specific laws in your state.

Having your car repossessed is at times very embarrassing and is among the most stressful experiences that you can ever go through. Besides, aside from losing your car, you may want to know how it will affect your credit rating and the likelihood of getting approved for loans and other forms of credit in the future. Thus, does a repo damage your credit? To the latter question, the answer is yes, unfortunately. What you should know is as follows.

How Does Repossession Affect Your Credit?

This event will be reflected in your credit report and whenever your car is repossessed, it will severely lower your credit score. There are a few main ways that a repo can damage your credit.

Before the repossession, if you were dodging your monthly auto loan payment then the missed or delayed payment would have been reflected on your credit reports. This aspect contributes a massive 35% of the FICO credit score. This already lowers your credit if you took months without making any payments before the repossession happened.

Credit account status changed to “Repossessed”

Instead of reflecting “paid as agreed” or “closed,” the account status on your auto loan will be “repossessed. ” This goes straight to letting other lenders know that you defaulted on the loan repayment terms. From the analysis done above, it is considered much more negative than other account statuses.

Entire Loan Balance Reported

When a car is repossessed and later sold by the bank, there is normally an outstanding balance that is left on the auto loan. By contrast, a full loan balance, not only the past due amounts, will be reflected on your credit report. This in turn can raise the utilization ratio that you have higher and the amount of debt that you are likely to pay.

For example, if you paid off $15000 for the car loan you were supposed to pay and what appears right before the repo is only $3000, it is far much better than the repo company reporting the entire $15000 the moment the car was repossessed.

How Much Worse Off Could I Get?

How many points your credit score falls because of a repossession varies depending on your circumstances, but it can go down over 100 points or even more. According to some rough calculations, the average repossession leads to a drop in credit score of 160 to 220 points. That I think is quite a strong hit to your credit rating.

In case the borrower had a fair credit or bad credit before repossession of the car, then their score might not drop as low as it would to a borrower with a good credit score. Although it still drops the score by at least 50+ points for those with lower scores.

In the case where you had good credit with high scores before the repo, you are going to drop even lower than the average amount. For instance, a man or woman with a 780 credit score will witness the credit score drop to 300 or so after car repossession, which significantly alters credit histories.

How Long Will a Car Repossession Stay on Your Credit Report?

It’s time to offer you some positive information. The effect that your car repossession has on your credit score is quite severe at the outset but it is not permanent. Many of the items that negatively impact your credit report, such as repossessions, remain on your credit report for as long as 7 years from the date of occurrence.

This data includes:

• The outstanding balances that resulted in the repossession of the car
• Repossession account status is the account of the amount of money that has been repossessed.
• Any balance left with the customer

Therefore, if you had your car repossessed in March 2020, this information will, in general, drop out of your credit reports around March 2027. Once you cross the 7-year mark, it is as if the repossession never occurred as far as your credit is concerned. You get back those points and none of the credit reports will show that there was a repo.

Until that 7-year period ends, you can take other steps to help rebuild your credit in the meantime, such as.

• Failure to make all other payments on time
• There is no need to be ‘maxed out’ on any credit card.
• Challenging any discrepancies on the credit report
• Gaining access to an account that you have not created on your own

Rehabilitating Your Credit after the Repossession

It is slightly challenging to rebuild your credit score back up once it begins to plunge; however, it can be done by being patient and following certain rules. But you can recover and here are some tips for repairing your credit post-repossession.

Make Other Accounts Current

So although it can take 7 years before the repossession is completely removed, you can minimize the effects during that period by ensuring that the other credit accounts in your reports have no blemishes. Avoid missing payments and have low credit card balances. Ideally, the longer and more positive payment history you have, the better it is for you.

Pay Down Debts

If you need to pay off a credit card, medical, or any type of debt, you may need to decrease it to lower your utilization ratio. Maintain balances below 30% of the credit limits on cards. Making timely payments of installments such as student loans also plays a big role.

Become an Authorized User

If you do not have a credit card of your own with a good credit history, an excellent way to get a credit card with a good credit history is by having a family member or a friend who has a good credit history add you as an authorized user on his or her credit card. This enables the positive payment record to start reflecting on your credit.

Limit New Credit Applications

After repossession, it is possible to apply for new financing from different sources too improve credit status or just regain access to money. However, any credit application leads to a hard inquiry on your report which will slightly affect your score for one year. Reduce how often you apply for credit or new credit cards.

Dispute Credit Report Errors

Check your credit reports again and again from Equifax, Experian, and Transunion. If there are any wrong dates, balances, or other repossession details displayed, then disputing is the right thing to do. Correction of errors also contributes to a better score as well.

Consider Secured Credit Cards

Because your credit rating is lower now, you may have to begin anew by applying for a secured credit card to become eligible for an ordinary unsecured credit card again. The amount of money you deposit acts like a security deposit. Make frequent purchases each at a minimal amount and then clear your balance in full and on time. After making the monthly payments for almost a year, ask to be transferred to an unsecured card and get your deposit amount back. Then proceed in the responsible utilization of credit cards because the record of payment aid in balancing the repossession.

The Bottom Line

Of all the bad things that can happen to your vehicle, having it repossessed is not good for your credit score, especially in the first couple of years. But if you are careful about paying bills in time and do not incur too much more credit than what you need to get the repo off your credit history, then you can build better credit. Long term, one can revert to unfavorable credit effects and it is advisable to be patient.

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