How Bad Is A Repo On Your Credit?

A repo (repossession) can be very detrimental to your credit rating and your wallet. When you borrow money through a loan to buy a car a home or any other property, the loan company has a right to take that property if you fail to pay back the loan. If you fail to make the agreed payments on the loan, the lender has the legal right to repossess the item and auction it to recover the unpaid balance. Getting one’s property repossessed is not a joke as there are consequences that will affect your credit and finances for years.

How Repossession Affects Your Credit Rating A repo is awful news for your credit score. As we have seen, repossession results in an immediate deduction of your score by at least 100 points, and often a much larger amount. Some key ways a repo harms your credit include.

This label is a payment history damage by defaulting on a loan as it significantly harms the payment history. The best predictor of credit scoring is the payment history, and thus missing payments defeat your score. This is very damaging because, after a repo, your credit record reveals that you have been seriously delinquent in your payments.

• High Credit Utilization – When an account is closed due to default your overall credit utilization rises significantly. This shows the extent of utilization of the available credit limit. High usage is associated with a higher risk and leads to significant score decreases.
• Poor Mark – After receiving a notice of default on the loan, the car will be seized and you will be taken through an involuntary repossession which is referred to as repo. This is a very bad mark on your credit report that reduces your score by a great deal on its own.

Aftermath: Trouble in Getting Credit In addition to severely damaging your credit rating, having a repossession on your record also annihilates your creditworthiness for years. Repo means Re Possession and any lenders or creditors who would be looking at your applications will consider you a very high risk and someone who cannot pay back the debts. This makes it extremely difficult to meet the requirements for any new credit. Be prepared to be rejected by banks when applying for car loans, mortgages, credit cards, or any form of credit for several years after the repo. In the long run, if you qualify for the program, you will be charged very high interest rates based on your risk classification.

Financial Loss from Repossession In addition to credit damage, having property repossessed also comes with significant financial loss.

• Deficiency Balance – This is the balance that you may have to pay should your repossessed property fetch a lower amount than the loan amount; this amount is billed to you if not paid by the sale of the repo. Depending on the state laws, the lender may also add various fees and penalties to this sum of money.
• Loss of Down Payment – The money you paid as a down payment or for the trade-in value of your car will be lost when you lose the car to repossession. You lose this money even as you still need to pay the deficiency balance to your creditors.
• Tolls and Costs – There are repossessing fees, auction fees, storing fees, and others that are very expensive. Other expenses include lawyers fees and court costs in case the lender seeks to recover the outstanding balance through other means apart from repossessing your property.
• No Item and No Refund – In as much as you own a car or a home appliance, once it is repossessed, you cannot use it again. And you cannot get any of your money back for the payments that you could have made for buying it. What this does is leave you without the item you expected to own as you continue repaying the loan together with no compensation for what you contributed towards it.

Recovering after a Repo It therefore takes time and effort to fully recover after a repossession has been done. Key steps include:

• Repay Loan Deficiency – Actively attempt to make payments until the loan is paid off and doesn’t get transferred to a collection agency. Note that this amount will still be recoverable from you even after the repo has been made.
• Rebuild Credit Slowly – Secured credit cards should be used to begin a positive reporting history again. Do not apply for new accounts frequently and show the credit issuers that you have been a responsible user of any accounts that you have been granted in the past. Always ensure that all the bills are paid before the due dates.
• Informing Lenders – Prepare information and documents necessary to explain the one-time repo situation to assure the lenders that in the future the company is not a high-risk candidate for major loans.
• Save Up Down Payments – Set aside enough capital to make a down payment on any future property loans to demonstrate a willingness to own property and capacity to make payments in the long run.
• Check Credit Often – Purchase credit reports annually and sign up for credit check progress on rehabilitating your credit into a more favorable status when lenders compare you.

The financial losses and credit impacts of vehicle or property repossessions are factors that no one would want to go through if they could help it. But knowing the specific effects that a repo has will assist one in handling the consequences in case one is caught up in this worst-case loan default scenario even when trying hard. To rebuild credit and qualify again, avoiding subsequent late payments leading to a second repo can be achieved by focusing on repaying debts.