How Bad Will A Repo Hurt Your Credit?

How Severe Will A Repo Be For Your Credit?

Car repossessions can be one of the most stressful and embarrassing experiences anyone can go through. Apart from the loss of your car, a repossession can also negatively affect your credit rating. How bad can a repo be for your credit? Carry on reading to discover more.

Understanding Credit Scores

But to assess the effect of a repo, one needs to know what makes up the credit score first. FICO credit score is used and it goes up to 850 from 300. Here, the higher scores mean that the credit risk on the loans to the lenders is low. Scores are calculated based on these five factors.

1. Employment history (35% of your score). It is important to know whether past credit accounts have been paid on time. This means that late payments will hurt your credit score.
2. Total owed (30%). This is your total credit utilization: Outstanding balances relative to your credit limits lower your credit score.
3. Credit history length (15%). In general, credit history lasting longer and responsible behavior contributes to a higher score.
4. New credit (10%). This means that one can open many new accounts within a short period which is likely to affect the score negatively.
5. Credit mix (10%). That is why it is beneficial to have different types of credit (credit cards, auto loans, mortgages, and others).

What you can see is that payment history and amounts owed are two strong components that comprise credit score. However, a repossession can be a major setback to both of these aspects.

That is the reason repossession affects your credit score in a big way.

When your vehicle is repossessed, this action is then recorded with the credit reporting agencies namely Experian, Equifax, and TransUnion. The repossession directly impacts two major areas of your credit report.

Payment History

All your loan payments are now considered missed or late payments up to the time the car was repossessed. You can lose up to 100 points of credit just because of a single missed payment. Late payment is another factor that proves that credit risk is high if several payments are missed.

Increased Debt Burden

You not only lose your car, but you are also held liable for any remaining balance in the loan which is recovered by selling your car through an auction. This excellent “bad debt” owed to the financer is included in your amounts owed credit scoring factor. Higher levels of unpaid debts are associated with less favorable scores.

Moreover, the unpaid balance from the repossessed auto loan can be sold to a debt collection agency. This results in another different account in the collections as per your credit report. Collections accounts are immensely destructive; their impact can reduce scores by over 100 points.

Not only are all of the above effects negative but the public repossession itself is also included in your credit report. Repos are separately mentioned as part of the “Adverse Accounts” section and are not only limited to missed payments. This is because adverse information is particularly problematic for credit scores.

But Wait, How Bad Is The Credit Damage?

The number of points that are likely to be dropped upon a repossession varies depending on your original credit score, the score model used as well as your entire credit history record. However, Fico says that the average credit score of a car owner reduces between 130-150 points once their car is repossessed. Unfortunately, it means that for someone with a very good score of 780, this would take them down to a poor credit score of approximately 630.

Those who already had low credit scores before can prepare to get their scores reduced by over 200 + via repossessions. This is a very big blow to the credit that is very hard to reverse. In general, everyone with a repo should prepare to have bad credit for several years. You will also incur higher interest rates because of perceived higher credit risk to the lenders.

How Does a Repo Affect Your Credit Score: Duration?

Before we proceed with the good news, let us take a brief look at the resolutions made by the shareholders. However, the impact of repossession credit effects are felt and though not terminal, they have stinging effects. Here is a breakdown of how long a repo sticks on your credit report.

• Repossession Record: Translates to 7 years from the date it first became delinquent up till the time of repossession.
• Unpaid Deficiency Balance: Remains outstanding for 7 years from the date of the repo sale’s completion.
• Collections Account: It also stays for about 7 years from the first payment which was missed out on. When it comes to accurate information, collectors do not like to delete it. Paying collections only alters the status from “unpaid” to “paid” and does not even take it out.

Moreover, one cannot negotiate an early removal of a legitimate repossession in any way. The entire 7 years must elapse, which does not apply in this case. The degree of credit damage gradually decreases from year to year as the event becomes less relevant.

For instance, a repo that took place in the year 2020 will be more damaging than a repossession that took place in the year 2015. More recent credit disasters have a greater impact on your scores.

How to Rebuild Credit After Repo?

To recover from a repossession, one will be required to make sensible and proper handling of credit. Here are proactive steps to rebuild your credit over time.

Discharge any remaining deficient balances.

The first step is to pay off any remaining deficiency balance owed on the repo. This will prevent more unpaid debts from being included in your score and affect it negatively. Attempt to pay off the balance in a way that costs less than the original financer or lending agency.

Dispute Inaccurate Information

Review your complete credit reports from the three major credit bureaus. In the case of any disagreement on the repossession with the credit bureau, one should try to correct the errors to enhance the accuracy. Some of the common issues are the first few payments that are made later before a borrower defaults.

Become an Authorized User

Get a family member, who has good credit, to include you as an authorized user to their credit card. The positive payment history that they give in their reports offsets the repossession to an extent.

Secured Credit Building Credit Card

Since approval is less of a problem, begin fixing credit gradually with a secured credit card. Utilize it sparingly and repay as and when due along with the full amount. In the future be sure to apply for new credit appropriately.

All Other Bills Should Be Paid On Time

In terms of utility bills as well as rent, ensure you and your partner maintain a clean record of on-time payments. Positive records gradually began to counter the effects of repo. Use online calendars and send reminders to avoid forgetting any due dates.

Credit Monitoring from all the three Credit Reporting Agencies

Note that you can monitor the reports from Equifax, Experian, and TransUnion, for free once a year through AnnualCreditReport. Com but it is advisable to check them monthly. Challenge any discrepancies immediately to keep records current. Monitoring also enables one to detect any indications of fraud as well.

Exercise Patience

And, above all, do not lose your temper. The best ways to re-establish credit after a car repossession do not have immediate solutions for curing bad credit. But year after year of positive habits does the trick. Many observe their scores recover quite well in the 3 to 5-year timeframe.

The Bottom Line

This is because the two players in the repayment process contribute to the rolling of payment history and debt to the credit bureaus, which leads to auto repossessions being catastrophic to your credit health. On average expect a very sharp 130 to 150+ point score decrease. Slow rebuilding can take many years of struggle to get your financial habits back on track and reach the previous position. But as the figures show, over a 7-year duration the sting of the repo diminishes and barely causes any discomfort.

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!