How Bad Does Repo Hurt Your Credit?

It is never easy to have your car or another valuable repossessed especially if you worked so hard for it. In addition to losing your property, repossession also has a way of dealing a devastating blow to your creditworthiness. So, just how much does repo harm your credit? This is what happens to your credit reports and scores after a repo: A few words of advice for getting back on track after a repo.

This article explains how repossession affects credit

For instance, when you borrow money to buy a car or furniture, and then default on your payments, the law allows the lender to seize the asset that you paid for. However, if you are more than 30 days past due on your loan, there is a high likelihood that the lender will initiate the repossession process.

Upon the completion of the repossession, the lender is likely to report it to the three main credit bureaus, namely Experian, Trans Union, and Equifax. The repo will be listed in the public records part of your credit reports and it can be on the reports for 7 years from the time it happened.

This is also a significant problem since it leads to repossession damage to credit scores as people fail to pay for the loan.

Besides, a repossession appears on your credit reports and greatly affects your credit scores with FICO and VantageScore, which are the most frequently used models. Some key points about how much repossession hurts your scores.

In certain situations, a repo can bring the scores down by 100 or even more. Individuals with good credit saw their scores fall from around the range of 700-750 to 600 or below.
With every negative piece of information that is already in the public domain, a new repo will be less of a problem. Those with low scores are not expected to suffer a drastic decline as much as the high-scoring population.
A repo usually reduces your scores more than a debt that you failed to pay but the property was not repossessed.
It may not show up in your credit reports after some time but the consequences of the repo can linger for several years in terms of your credit utilization ratios as well as length of credit history.

For how long does repossession affect your credit?

It is hard to determine the extent of the impact a repossession may have or for how long it will be detrimental to your scores. Here are some general guidelines.

At the end of the first six months after the repossession, you are likely to have your scores reduced by 100 points or more.
The scores may go further down during months 7-12 although it will probably not be as drastic as the first three months.
By the second year, it appears that the worst is over but still, scores may remain low one hundred points or below.
If you have been rebuilding credit responsibly, your scores will start to improve gradually after 2-3 years.
Even at the 7th year, full, when the repo drops off reports you still suffer length of credit history and utilization ratio.
The only thing that should be avoided is having high expectations of getting better scores within 6-12 months. Understand that it takes years to rebound from a repo situation as it is a long and tedious process of rebuilding. The good news scores can and normally do come back for consumers who demonstrate they have learned from their prior mistakes.

How to Rebuild Your Credit After Repossession?

Whenever your car or any of your assets are repossessed, it is easy to become very annoyed and even uncertain of what to do. Do not forget that although repossession negatively affects your credit and makes you financially vulnerable, it is always possible to start rebuilding credit again in the future. Here are some tips for bouncing back.

Pay off credit cards – If you carry balances on credit cards, this is the time to pay them off and if you have a mortgage or student loan, always pay on time. However, the ability to pay other credit accounts on time after the repo is another way of minimizing the impact.
Settle collection accounts – Most repossessions are later sold to collection agencies. If you have collection accounts from your repossessed auto loan or other debts, pay them off to stop them from continuing to harm your credit via negative reporting.
Pay your debts – A goodwill letter is a letter that you write to your creditors requesting them to delete negative marks on your credit due to financial challenges. These letters should be sent to repossession lenders and credit card issuers requesting them to delete that late payment and other derogatory notes that still exist.
Become an authorized user – Gaining authorized user status on a spouse’s or any other family member’s long-standing credit card account can also aid in increasing your scores within a short period. Ensure that any account that you are invited to join is always active and maintained well.
Differences – There are many discrepancies in credit reports and errors in credit files. Pay a lot of attention to the reports prepared by Experian, TransUnion, and Equifax. If you notice any entries that concern your repossession or anything that seems to be incorrect or out of date, begin a dispute immediately.
Restrict credit inquiries – One can be tempted to apply for many new credit accounts more quickly beg within reach of credit. However, each application results in a hard inquiry on the report, and if made frequently, it will impact the scores. Use credit as a last resort and in moderation after the repossession, but, do not necessarily avoid credit altogether.
Establish a good credit history with secured credit cards – secured cards involve putting down a cash deposit that is usually the credit limit. It assists in sharing some of the risks the issuer is willing to take by approving you. Secured cards contribute to credit repair by extending small amounts of credit initially while excluding debt exposure.

When it comes to car repossession or any other assets being repossessed, it may feel like getting back on track can be very daunting. However, by knowing how much repossession affects credit, and by taking the right slow steps in the right direction, it is possible to regain strong credit back after repo. Cautious in the use of credit and persistent in the months and years to come.

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How Bad Does Repo Hurt Your Credit?