Does Repo Affect Your Credit?

Car repossessing is one of the most stressful and embarrassing things that can happen to any person. In addition to losing your car, you are likely to be concerned about the effects on your credit rating and report. Thus, does repo affect your credit? However, the answer to this question is yes.

When you lose your car through repossession, this is registered with the three credit reporting agencies including Experian, Equifax, and TransUnion. The lender you borrowed the cash from will inform the credit reference agencies that you failed to make the auto loan payments and your car was repossessed. This goes to your credit report and can effectively decrease your credit rating.

Repo and its impact on your credit score

There are a few key ways that having your car repossessed hurts your credit.

1. Payment History – Payment history ranks highest in contributing to your FICO credit score, which is at 35%. Failure to make the payments on any sort of loan is detrimental to the payment history record. Once you have a car loan that becomes delinquent and repossessed because you did not pay, your good credit standing ceases. This will negatively impact your credit score.
2. Amounts owed - This factor contributes to 30 percent of the credit score. Being in a default position with a loan and having a balance owing has negative effects on the sum of money owed to the creditors. This will lead to defaults and deficiencies on auto loans and thus result in more overall debt liability.
3. Credit Utilization – This factor contributes 10 percent of your credit score depending on the proportion of your credit mix. The absence of an installment loan such as an auto loan in one’s credit history is likely to be seen as a loss. This reduces the depth and the diversity of your credit mix; thus, negatively impacting your score.
4. New Credit -Your credit score is made up of 10 percent of the new credit accounts you have opened. This average can be altered by a repo auto loan, particularly if you find yourself in a situation where you have to take a subprime used car loan. It is, however, important to note that, new credit can reduce your score, especially if it is in excess.

Apart from the effects a repo has on your credit report and score, you may also end up with other credit mistakes that further reduce your score. For example, being over the limit, being delinquent on other accounts, applying for many credit cards when one has no car, and so on.

How Low Can Repo Go?

The extent your credit score decreases due to an auto repossession often depends on your starting score and financial situation.

People with exceptional credit – FICO 680 and above – can drop by 100 to 150 points with a repo. In other words, your credit rating may drop from good to fair or poor. For individuals with a fair credit rating of around 600 FICO, a repossession tends to reduce the rating by 150 or more. This puts you well into very poor credit territory at 400-ish. If before the repossession of the vehicle, you have a poor credit–credit score of 580 or below, then the impact will range from 50 to 75 points. But when you have a bad credit rating, any further drop in this score is extremely unfavorable.

The more your account was almost paid at the time of repo, the less negative impact you may witness  For instance, if you have been diligently making monthly payments on the auto loan for years and then you lost your job and defaulted in the next 6 months with only a few months left before you are done paying, it will be less painful compared to a person who becomes a defaulter in the first year of a 5-year auto loan repayment.

Policies to Follow to Rebuild Credit After Repo

This is because it takes time to repair your credit once it has been damaged due to an auto repossession. But here are some tips to start improving your score.

• Settle any deficiency balance – If applicable in your state, ensure to clear the balance after the car is sold at an auction. This helps in avoiding other late payments being reported.
• Other accounts are current – All other credit accounts such as credit cards and mortgage payments should be current to succeed. Keep the card limits significantly below the income and pay the amount in full each month. Only borrow when it is necessary to do so.
• Do not apply for new credit immediately – on average, repossession can take as little as 1-2 years for your auto loan balance to disappear from your credit report. Do not apply for other major loans during this time as well.
• Secure credit – after circa 12 months, apply for a secured credit card and secured loan. It is also important to make timely payments as this will prove that one is capable of paying the installments responsibly.
• Check credit reports – make sure to receive the credit reports from each of the bureaus at least once in 4 months. Request to challenge any data with the bureaus to ensure that the negative account information being reported is correct. This helps to avoid worsening your score any further in case you make a mistake.
• Seek credit help – Credit counseling from a nonprofit organization may offer helpful information to manage debts and rebuild one’s credit score after repossession.

How Long Does an Auto Repo Stay on Your Credit Report?

According to the FCRA rules, credit items with negative information such as collections, late payments, repossessions, etc can only appear on your credit report for 7 years starting from the time you missed your payment. The auto repo entry itself may show for 7 years from the initial default date This indicates that the auto repo entry may show for seven years from the date that the company defaulted.

However, if the auto loan is not paid off in full and the account is open, then the balance can remain on the credit report indefinitely until the debt balance is zero.

In most states, however, the auto lender is allowed to write off deficiencies within the 3-6 year period after a repo depending on the state statute of limitations on such cases. Therefore, the negative account history would be removed from your credit report after roughly 7 years post-default.

Summing it Up

Vehicle repossession is as bad as it can get since it is traumatizing and as you know life becomes very hard when you don’t have a car. However, in addition to the loss of a car, a repossession also leads to a direct and severe negative impact on the credit score for many years. More potential problems with finances in the future are also likely. That is why it is essential to know all the other consequences and try to focus on credit recovery.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!