How Bad Does A Repo Affect Your Credit?

How Severe Is the Impact of Repo on Your Credit Score?

When your car is repossessed it is one of the most embarrassing and stressful experiences one could go through. Besides the inconvenience of losing your car, a repo also pulls down your credit rating to an unsightly level. How bad is a repo for your credit? Please read on to find out more.

What does Car Repossession mean?

The lender of a car loan keeps security interest in the vehicle until you pay back the debt. Should you stop making payments, the creditor has the legal right to seize the vehicle and then auction it in an attempt to offset their losses. Usually referred to as an involuntary repossession or just a repo, this is You will, however, jeopardize your credit big time going through this procedure.

How Repossession Affects Your Credit Reports and Credit Score?

The three primary credit bureaus through which lenders report information are Equifax, Experian, and TransUnion. In most cases, when your vehicle gets repossessed, the creditor will contact the three credit bureaus. It will also report the repo to the credit reporting agencies and will appear on your credit reports for the next seven years. The worst mark on its own can reduce the scores by as much as 160 points.

In addition to the repo listing, the reports you receive will also include any payments that were missed or paid past the due date before the repo. Other accounts may be charged off and go to collections if there is still a balance remaining after the car is repossessed. If there are too many new derogatory marks on the reports, it can negatively affect the scores significantly.

The Specific Factors Affecting Your Scores The general factors are usually consequences of the specific factors hurting your scores and each is discussed below.

When the FICO and VantageScore models were designed, there were five factors they looked at when grading your credit. Regrettably, repossession also affects several categories.

Payment History

Lenders want to be assured that you are capable of paying back the money that you have borrowed. This portion of your scores suffers the most from missing payments. A repo shows that you were very slow in paying your bills or you were completely out of cash. It will sink this section of your reports.

Amounts Owed

If you are left with a balance that you need to pay after the finance company has sold the repossessed car, collections accounts that report those unpaid balances will also decrease your scores in this category. The smaller the balances you have about your total credit limits as well as the lesser the collections and the delinquencies you have, the better.

Length of Credit History

Late payments indicate that you are a credit user and can take on an additional loan. The average age of credit history is decreased, and positive payment records are eliminated if accounts are closed after a repossession. This could have an impact on this part of your scores as much as it could positively influence them.

New Credit

To open new accounts to replace the ones closed from the repo will also be detrimental to your scores in this section in the short run. New accounts and hard credit inquiries from applying for credit are also likely to be too many in this case and these denote higher risk.

Credit Mix

It is preferred if you understand how to manage installment loans and revolving credit facilities. To lose an auto loan account is to reduce your mix hence your grades will be affected.

Repo is a last resort for those who fail to pay up and this usually affects the credit score greatly, thus, learning how to rebuild credit after repo is essential.

Recovery of credit after repossession is possible but requires time, effort, and commitment to correcting your credit profile. They should ensure they pay all the bills on time in the future to establish new payment records. Reduce balances as low as feasible and there should be no new credit for a while. Maintain old accounts and apply for credit only when necessary. Also, request creditors to report the account status as ‘settled’ rather than repo if the situation demands so. This slight change appears more favorable to the potential lenders.

How Long Do Repos On Your Credit History?

However, a repossession is a severe blow that adorns your credit report with a tag that is valid for 7years from the first time it registers in your file. However, your score will experience a decline and this will begin to reduce as the number of months elapse and the negative information becomes obsolete. As you will see, the more recent the repo, the worse it is for your numbers.

Can You Bargain with the Lender?

Yes, it is true that after a repossession, it is common to attempt other forms of payment with the financier to please both parties. Sometimes, they may allow you to surrender the vehicle willingly instead of having it physically taken away from you. This looks slightly better credit-wise. You may also be able to ask for smaller deficiencies due or a new payment plan. They want to get their losses back, and reports are time-consuming and costly to lenders as well.

Should a Business File for Chapter 11?

Bankruptcy can be said to be an eraser that wipes your credit clean and you can then start rebuilding. Nevertheless, it has its long-term credit effects, legal costs, and rigorous conditions. Bankruptcy records remain on your reports for 7-10 years, depending on the chapter of bankruptcy you file. It is crucial to consult with an experienced legal and financial professional to find out whether it is the best option in your particular case. However, there are benefits and risks which must be considered rather thoroughly.

The Bottom Line

However, it is regrettable that going through a repossession can seriously affect the credit scores and the effects usually linger for years. For the next 12 months, avoid making any late payments, keep minimum balances low on all credit cards, and refrain from applying for new credit. With time and commitment, you can always repair your bad credit. But it requires hard work and time. If you need assistance in developing a credit restoration plan that is suitable for your case, do not hesitate to check for professional services.

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!