How Much Does A Repo Affect Your Credit?

How Much Does Repo Hurt Your Credit?

Car repossessions can be very stressful and embarrassing for those who have their cars repossessed. Besides losing your car, a repo can also negatively impact your credit scores in a big way. How much does a repo affect credit scores? Well, let us continue reading to find out the details.

What Is A Repo?

First of all, I would want to make sure everyone understands in this context what a repository entails. A repo, often known as repossession, is the process by which a lender takes back a loan-securing collateral item. This happens when the borrower misses other loan agreement requirements makes partial payments or fails to pay overall.

Among the regular targets of repossessions are residences and cars. In the event, that the owner is unable to make the loan installments, a vehicle repo involves the lender using a repossession company to physically remove the automobile. After that, the automobile is sold so that one may pay back the loan used to pay for its acquisition.

How Does Repossession Affect Your Credit?

With all that being said, how does this concept of a repo affect your credit report and scores? Repossession is among some of the worst things that can happen to a credit.

This event is reported immediately at the major credit bureaus, including Experian, Equifax, and TransUnion after your vehicle is repossessed. It will be listed in the public records category of your credit report and will remain there for 7 years from the time it was reported.

The repo directly hits your credit score in a couple of major ways.

Payment History A repossession means you have not been paying your installments as required. This will cause a huge drop because payment history is a major determinant of credit scores. Late payment can negatively impact the scores whereas repo shows that one might have been in default for months.

Utilization If you still have a balance after the car is repossessed and sold, this will be reflected as a maxed or charged-off installment loan. Credit utilization or using a large portion of your available credit negatively impacts your credit scores.

As can be observed, with the late payments and the unpaid balance, a repo can bring down one’s credit score by 100 points or even more.

Other Credit Impacts

Beyond the immediate hit to your scores, a repo can also impact your credit in other ways.

Chances of Approval Your credit rating, as well as your perceived creditworthiness by lenders and creditors, will be considered very high risk if you were to have a repossession. This will make it impossible to qualify for loans or credit cards at reasonable interest for many years.

Interest Rates When you have a repo and you want to borrow money, be ready to be charged very high interest rates because creditors think that you will not be able to pay them back. The cost of money borrowed is influenced by interest rates.

Deficiency Balance Even after a car has been repossessed and sold to recover the outstanding balance, this deficiency balance does not vanish. Since it is an unsecured debt, the credit provider or debt collector can legally come after you to recover it.

Future Down Payment If you want to finance another car in the future, be prepared to part with a very huge down payment. The lenders are likely to want more evidence that you are capable of making the payments the second time around.

Rebuilding Credit After Auto Repossession

Yes, it is possible to recover from a repo, but it can take time and lots of hard work. Here are some tips for recovering after a vehicle repossession.

Pay the Deficiency If there is a balance that is outstanding in the car after its sale, make an effort to clear this balance fully. This will help in preventing other unpaid debts from lowering your scores more.

Ensure Accounts Up To Date Try as much as possible to maintain and even update your credit scores on all your other active credit accounts. This comprises any mortgage, credit cards, personal loans, student loans, and the like which you still bear.

Live on A Cash Basis It is also important not to engage in any new credit or loans for several years after undergoing a repo. Avoid using credit as much as possible and use only cash for the necessary expenses.

Dispute Errors Get copies of your credit reports and challenge any unfavorable items regarding the repo. This includes such things as, dates, loan amount, and account status among others, they have to be accurate.

Write Goodwill Letters Every once in a while, typically once a year, it may be a good idea to write goodwill letters to your creditors and the credit bureaus to request that it be removed. This is not a sure bet but might be something to try.

Give It Time However, there is no quick fix or magic bullet that can be employed to wave a magic wand and make the repossession vanish from your credit report. Do not let this negative item overshadow your entire credit profile as you make progress in building good credit in the future.

Final Word Having your vehicle repossessed can knock down your credit scores by well over 100 points or even more. The repo will be seen in the public records and the credit reports for seven years from the time it was recorded. However, this is not to say that you cannot repair your credit after a repossession, and with perseverance, it can be done. Just be ready for it to take years, not months. Practicing positive financial behaviors and paying for other bills on time from the time forward.

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