Does Repo Hurt Your Credit?

Does Repo Damage Your Credit Score?

Having an automobile reclaimed from one's name is rather humiliating and upsetting. Apart from the trouble of not having your automobile around, your main focus will probably be on how your credit score is doing. Consequently, the issue of whether or not you should have your automobile repossessed compromises your credit.

To put it simply, the answer to the inquiry is: yes, getting your automobile taken back will lower your credit score. Should you fail with an auto loan, the lender locks the title under a lien by the time you are funding the vehicle. Should you neglect to make the agreed-upon payments or repay your loan, the lender's legal right is to seize the automobile and sell it to recoupment of the loan balance. Your credit report will show the activities of repossession and collection you engage in.

How do Repos Affect Credit Ratings?

There are a few ways that a repossession can directly hurt your credit.

1. repayment history; This accounts for 35% of the total FICO credit score. In case your vehicle loan is in default because you failed to pay it and the vehicle is repossessed, then you are proving that you cannot pay for the debts. This will hurt your ability to make on-time payments or meet the payment schedules.
2. Public Records and Collection Items – Going by the repossession aspect, there is a high tendency for your car to feature in the public records and collections sections of your credit report. Many of the credit scoring models used to assess your creditworthiness have penalties for collections items or defaults on your credit record.
3. Credit Utilization – If you lose your car to the lender, your credit utilization of auto loans and perhaps your overall credit score will be affected. This determines the amount of your credit line that you are currently utilizing. HCC can also be a negative predictor as a higher utilization rate is detrimental to credit scores.

Furthermore, it’s important to note that the repossession will linger on your credit report for the next seven years starting from the time it was done. This could somehow cause some strains on your credit history making it hard for you to access future loans or even rental applications where a credit check is done.

How Many Points Down Is It Safe To Drive With?

However, the actual deduction that you will likely experience is quite significant depending on several factors such as your current credit score as well as the length of your credit history. FICO stated that credit scores were reduced by an average of 85 to 160 points after a vehicle was repossessed. Which could reduce someone from having a good credit status to a poor or even a bad one. If you were already in poor credit standing, the repossession alone could bring your score down by over 200 points.

Rebuilding Credit After Repo

The best news is that even if your car was repossessed, your credit is not destroyed for good. With some time and dedicated effort, you can start to rebuild and recover your credit.

• Paying off the Auto Loan Deficiency – After selling the repossessed vehicle, you may owe some amount of money to the lender, and you need to clear the balance with the help of a collection agency or the lender. It is always advisable for those with outstanding loans to clear them fully as this is shown on credit reports.
• Other Loans – Ensure that all other loans and credit card balances are paid in full and on time in the future. When the payments are made on time, then there will be improved credit management as evidenced by the figures.
• Better Credit Utilization – Keep credit card balances below 30% of the credit limit and pay the bills on time in full.
• Wait It Out – This is a method of allowing the negative mark to be washed out of the credit history. Practice good credit behaviors. The longer the time that has passed since the repossession, the smaller the effect it will have, especially if the positive payment history has been built up since that time.
• Creditors – If the credit record shows that the client was prompt in paying the installments before the repossession, the creditor should be contacted and asked to review the situation and make the necessary changes. Include documents if you have any which support your request as much as possible.

Although it may take time to get back on track after a vehicle repossession, it does not have to be the end of your financial and credit recovery. Accept the fact that credit rebuilding is a gradual and slow process. It is also important not to add more debt to your credit until your credit starts improving. Being disciplined, and finding ways to get accounts current, credit can rebound.

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