How Bad Is A Repo On Credit?

A repo or repossession is a very bad thing for your credit score and credit rating. When a lender repossesss a car or any asset due to nonpayment this means that other current and also potential future lenders and collectors consider a person as an extremely high-risk credit risk.

How Repossessions Affect Your Credit Score A repossession can drop your credit rating by anything from over 100 points and above. This is for several key reasons.

1. Creditor Payment Record – This one accounts for a large portion of the score as it relates to your ability to pay the money over time. This means that when your car or any other asset is under attachment for nonpayment and is taken away it means that you have a poor payment history. It proves that you had not been able to make the repayments on time as agreed to on the loan or financing agreement. This negative information on your credit report can remain for up to 7 years.
2. Higher Credit Utilization – A repo can also affect your payment history and not only increase your credit utilization rate but raise your overall credit utilization ratio if you still have an outstanding balance on the car or property after it is repossessed and sold at an auction. When added to available credit from the closed loan, this can increase your credit utilization and thus lower your scores.
3. Credit account – Thirdly, repossession always entails the shutting of the credit account resulting from the auto loan or financing that was attached to the car in question. This may lower the average age of your credit history and also, your overall available credit — two more factors that hurt your credit score.

It only takes one car repossession to knock your credit score down 150 points or more. It alerts other lending companies that you are a ‘high risk’ and cannot meet your repayment obligations as and when due. This means that potential lenders are much less likely to give you new credit or loans as you desire.

How Long Car Repossession Remains on Credit Report The adverse effect of a car repossession can last up to 7 years on your credit file from the first default which may have resulted in the repossession. It normally takes seven years from the date of closure of an account to be out of credit history if the account is in a healthy status. However, with repossessions, the seven years begin from the moment the first payment is missed, not when the account is shut down. This means the mark can exist for more than 7 years in total which would not be possible according to the present laws of the UK. While the drop in the credit score is not as steep over the next few months, it is a burden that you can carry for several years.

How to Recover a Vehicle After it is Repossessed There are certain exceptional circumstances in which you can retrieve your car even when it has been repossessed. This is most common in ‘involuntary repossessions,’ situations where your lender takes your car without prior warning. Nevertheless, this option remains very limited. Requirements typically include:

• Full payment of the remaining loan balance plus any fees that are charged.
• Dealing with repossession costs such as towing and storage.
• When any outstanding loan payments have not been made on time.

And even if you manage to get the car returned, the stigma of the repo on your credit report stays with you. This route does not eliminate the adverse credit consequences – it just lets you take back the physical car if required. For most consumers, however, the costs are too prohibitive after repossession to reasonably reclaim the car.

Alternatives to Repossession If you get far enough behind on payments that repossession is imminent, you may still have alternatives to try avoiding the seizure of your property.

• Reinstatement – This means making the loan current by paying it up to a certain cut-off date. In effect, you pay all the back payments due and any fees to, ‘renew’ the loan. It may at least temporarily put an end to repossession.
• Forbearance – Here, you agree with the lender and mutually agree not to make any payments for a given period. This freezes payments but the full amount continues to accrue interest.
• Modification – Here, you look for a new adjustment of the loan terms that is permanent. This may include fewer monthly installments, increased time to pay back the loan, reduced interest rates, etc. Desired new terms must be okay by the lender.
• Refinance – In the final stage, you have to clear the bad credit loan and take out a new loan from a different lender. This gives one a fresh start but with the difficulties of obtaining credit.

The following can in particular possibly assist in preventing repossession as a final decision. However, they need the consent of the lender and do not guarantee that all the problems with your debts are solved for the long term. It is always a good practice to avoid a car repossession if at all possible not only for the credit score but for mobility as well.

Recovering after a Repossession If your vehicle or other property does end up being seized and resold by the lienholder, taking the below steps can help start rebuilding your credit.

• Settle Outstanding Balance – This is usually the case after repossession auctions off your property but often, you will still be expected to pay more. Do not allow it to go to collections, so pay this off as soon as you can. Spend less take an auto loan or, better, consolidate other debts.
• Improve On-Time Payments –Ensure that all the open accounts are current and make payments on time every month. This helps gradually to begin to erase the negative marks from the repo. Keep the revolving balances also low This way, one will be in a position to manage this type of credit without much stress.
• Wait It Out – As time passes, the severe credit damage slowly fades. It is therefore advisable to sustain prudent money management in the meantime up to the 7-year age.
• Raise Credit Files – explore secured cards, credit builder loans, cell phone bills that are reported to a credit bureau, etc. These boost payment records apart from credit cards.
• Check Credit Reports – It is important to check all three major credit reports from Equifax, Experian, and TransUnion at least once a year to make sure there are no errors. To challenge any inaccuracy you come across such as invalid account information. This eliminates any chances of scoring below your potential or a high score that doesn’t portray the real you.

It is quite possible to rehabilitate credit even in the wake of a devastating repossession if one is patient and persevering. But avoiding the seizure in the first place through timely payments or any other available methods is indeed the best way. Eschew repossession and score damage where and whenever feasible. And if you do default, rebuild your credit status by following the above steps to get back on the right track.

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