How Much Does A Car Repo Affect Your Credit?

What is the impact of car repo on credit?

Car repossessing is one of the most stressful and humiliating things that can happen to anyone. In addition to losing your car, a repossession can also negatively impact your credit rating and your ability to secure loans, credit cards, and other forms of credit in the future. However, how much does a car repo impact credit? Below is a breakdown of how credit is normally affected when one has their car repossessed.

The Exact Credit Score Drop

About 90% of the population experience a barring on their credit score ranging from 100 to 200 in the aftermath of a car repossess. For instance, if your credit score was 650 before the repo, it may reduce to 500 to 550 range after the repo. The exact drop usually varies depending on your initial credit rating and credit history. Depending on the state of credit before the repo, if one had improved credit status, and few delinquencies then the impact may not be so severe. However, if you came with only a fair credit to begin with, a repo could push down the credit rating significantly.

It is also important to remember that a repo does not impact one credit score but rather several scores. It is important to understand that most consumers have several credit scores from the three main credit bureaus, namely Experian, Equifax, and TransUnion. All of these scores will be affected after a repossession has been done.

Why Repossession Damage Credit?

The following are some of the reasons as to why a vehicle repossession greatly affects your credit. First, most repossessions only take place after you get months, if not several months, behind in your payments. Failing to make these payments will already harm your credit before the repossession takes place.

Second, the repossession is immediately sent to the major credit bureaus as a very severe violation of the agreement. What this means is that you completely failed in your debt responsibility of the car loan or lease agreement. Credit scoring models consider repos as evidence that credit scoring models consider repos as evidence that you are at very high risk for other types of credit.

The third thing that repo does to credit is that it remains on the credit report for a long time, specifically seven years from the first missed payment. This means the negative mark will appear on your credit file for years, and this will affect your creditworthiness for things such as credit cards, home loans, and so on.

Other Potential Credit Impacts

Beyond the initial credit score drop from the repossession itself, consumers often face other credit challenges including.

Collection accounts: In case you still have some balance with your auto lender when they sell the car, they will resort to sending the balance to collections. This has the effect of creating another negative credit account.
Deficiency balances: Some states permit auto lenders to sue you for the balance of the loan after selling your car at auction. This deficiency balance can be reflected on your credit report.
Higher interest rates: New credit that you apply for will be expensive in terms of interest rates and this will mean that you will end up spending more money.
Frequent rejection of credit cards and loans and other instances of credit crunch. Lower credit scores and recent repossession on your credit report lead to many more rejections of credit applications.

How Long Does A Repo Hurt Your Credit?

This means that a repo can remain on your credit report for as long as 7 years from the initial missed payment date, although its influence reduces gradually. Here is a general timeline of how long a car repossession will affect your scores.

Within 30 days of the repossession: A person’s credit score gets affected immediately; worse effects are observed in the first month.
1 year after the repossession: It may perform a little better if positive credit is built up again maybe regained slightly.
3 to 4 years after Adjustment is still severe for credit but not as much as the first decline.
6 to 7 years after: Repossession usually gets cleared from the credit reports and the impact on the scores reduces over time.

However, there is an exception for FICO Auto Scores which are different credit scores used by car lenders for auto loan rating. The repo may still affect your auto credit score for up to 10 years as most auto lenders are very sensitive to previous defaults.

Rebuilding credit after a vehicle repossession

It is possible to rebuild your credit even after a damaging repossession through responsible actions including.

To settle any other outstanding balance which may be due to the original auto lender. If a company has an outstanding balance in collections, this will have negative effects for a more extended period.
Ongoing commitment to paying all other credit accounts on time. On-time payment of such magnitude will help to counterbalance the major delinquency.
Reducing credit applications within the 1 to 2 years period after the repossession. Yet too many new inquiries can harm further.
Monitoring your credit reports and reporting any discrepancies to the bureaus. This assists in achieving the maximum score as the repo advances.
Sending goodwill letters to your auto lender and explaining how they might stop reporting the negative item earlier than the full seven years because you have made improvements and are now handling your credit responsibly.

Getting back into the credit can be a very exhaustive process after a car has been repossessed. But knowing the specifics and how long they would negatively affect your credit, and working to repair the problem shows that you are a new person and should be given a second chance. The only way to avoid such situations and work on credit repair is to practice sound financial management at all times.

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!