How Much Does A Repo Hurt Your Credit?
How Much Credit Score Is Dropped During A Repo?
Car repossessions are embarrassing and very stressful events that can significantly affect your life. Apart from losing a car, repossession also has a detrimental effect on your credit rating. But how much will a repo damage your credit though? Read on to know the answer.
What is a Car Repossession?
This means that when you finance a car, the financier holds an ownership right to the car until the end of your installments. If you fail to repay the loan, you lose the right to the car and they get the right to repossess the car. This usually happens when you are unable to make several consecutive payments.
The lender provides a repossession company to come and pick up the car from your house, your workplace, or any other place. Sometimes, they appear unexpectedly with no prior notice. If the borrower defaults on the loan, the lender will take back the car and sell it to recover the loss incurred.
How Repossessions Affect Your Credit?
It is important to know that they remain on your credit report for as long as seven years.
A car repossession is among the most detrimental entries that can be reported by the credit bureau. It is going to be available in the public records part of your report. Information in this section usually remains on your report for seven years from the time the credit reporting company placed it there.
This is significantly longer than late payments or other types of credit missteps, which disappear from your credit report within 1-3 years. Another thing that impacts credit negatively and for a longer time is if you had a recent repossession.
It Affects Your Credit Score
Other than being listed in the records of the public, a repossession is also listed in the payment history of your credit profile. Being unable to make the payments on a car loan also makes it a serious delinquency the same way that missing several monthly payments does.
This harms one of the components that constitute your credit score, your payment history, specifically timely payments.
Your Credit Score Could Drop Over 100 Points
Well then, simply what sort of credit score damage are we speaking of here? Credit agency FICO reckons that a person with a clean credit record could lose more than 100 points of creditworthiness due to a repossession.
For instance, a person who has a credit score of 700 can get to a score of 600 or even lower after they lose their car. If, however, your credit score before the repo was relatively high, then the impact is relatively larger.
It Makes You Look Like A Credit Risk
If a lender is looking at your credit history, the most recent repossession is a definite negative factor. It makes you look extremely risky,” said Wayne, a 26-year-old college dropout. And if those car payments, for instance, were not managed appropriately, then why would they believe that you would be able to pay for mortgage credit card balances or any other loans?
Most of the conventional lenders will not give you other credit if you have a recent repo. If you do qualify you will be charged much higher interest rates this is because it is viewed as a high risk. They also pointed out that it may be difficult to rent an apartment after a repossession.
How Long Before A Repo Falls Off Your Credit Report?
We discussed this briefly before, a repossession is reported in your normal credit report and can take 7 years. The public record will be removed after this time. But that should not necessarily imply that your credit status will bounce back or go up to previous levels.
Other detrimental products arising from the repossession may include charge-offs, collections, and accounts for late payment, which may take up to 10 years to drop.
To determine these additional items, you will have to review your credit report and contest any inaccuracies that you find there. Paying off the remaining balances on the accounts that are related to the repo is also helpful in the future.
That is, even once the repo finally drops off from your credit report, you are not entirely out of the woods as you would have to make an effort to repair your credit. After 7 years, you are almost like a new person, and you get a fresh start. However, it does not erase the bitterness of realizing your past financial mistakes.
What to Know About the Possibility of Removing a Repossession from Your Credit Report?
In very special cases, one can request the deletion of a repossession from the credit report. This means establishing that the repossession in question was reported or carried out wrongfully.
Here are some examples where you could potentially remove a repo.
- The lender never gave you the required Right to Cure notice before repossessing. This allows you to catch up with your payments in case you have defaulted before they can legally repossess the car.
- The loan was repaid or you negotiated with the loan provider to cease the repossession. If it still appears wrong on your part, then you can contest it and have the information corrected.
- The repossession is not reported within the 7 years before the creation of the latest credit report but it is on the latest credit report.
It will be very difficult to argue why the repo should be erased if you do not have evidence that the reports are false or that the violations did not occur at the time of the repo. Like a bankruptcy or a foreclosure, almost all repossessions remain on a credit report until they eventually discharge themselves after 7 years.
Should You Voluntarily Surrender Your Car?
If you completely lose track of your payments and notice the looming repo, it is usually smarter to return the car to the lender yourself. This avoids:
- This means that expensive repo fees are being added to the loan balance.
- Liability for legal proceedings and judgments against you
- Being subjected to the costs of any damages and tows in case of compulsory repossessions
Returns the vehicle based on your decision before the repossession company grabs it.
Alright, fine, your credit score will be equally ruined no matter which option you choose. But willingly returning the vehicle ensures that such a process occurs faster and no more complications arise in the future.
How to Rebuild Your Credit After a Repossession?
A repo can be infuriating and leave one with that dreadful feeling of never being able to stand back on credit. But there are steps you can take to rebuild stronger credit over time following car repossession.
Keep paying other credit accounts promptly.
If you had a bad experience with a car loan, you have to continue making at least minimum payments on your credit cards and any other outstanding loans or balances you might have. This is an outstanding balance (what you still are owed even after they have sold the repossessed vehicle).
Nonetheless, they help to avoid further worsening of your credit by keeping tabs on other accounts.
Reduce credit card balances.
Having lots of debt on revolving credit accounts such as credit cards only makes lenders more reluctant to deal with you after a repo. Try to pay these balances down as fast as possible. By keeping balances below 30% of the credit limit on each credit card, it is possible to increase your sorely needed credit scores.
Avoid Applying for New Credit Right After Coming of Age
It is difficult, but one should avoid applying for any credit while reconstructing your credit history after repossession. Inquiries and opening too many accounts will further decline the score if done frequently or at the wrong time. Wait for some time before the effect of the repo is fully reflected before engaging in more credit.
Have Your Credit Reports Reviewed by an Expert
Make sure you monitor your credit reports from Experian, Equifax, and Transunion once a year to look out for errors caused by the repo. Challenge any incorrect or false items to the extent possible to give a clean history. This also guards you against possible identity theft when you regularly monitor your credit reports.
It is essential to write goodwill letters to your lenders.
If the repossession was really because of some things that are out of your control such as loss of a job or health ailments, then at least a goodwill letter would not harm you. These letters effectively request the lender to cease reporting adverse information in complete good faith. It probably will not be effective, but I guess it would be okay to try to appeal to their emotions.
How Long Does It Take to Qualify for Another Car Loan After Repo?
The consensus is that potential buyers should wait a minimum of 12 to 24 months before attempting to get a repossessed car financed again. However, it is significant to note that the credit status of each person is unique. It is never easy to regain the confidence of auto lenders once the default button has been pressed.
It is better to focus on a gradual increase in credit score and some time gap after the repo mishap and the loan application. It is also advisable to get pre-approval from a dealer or lender so that you will know that you will be approved before you set your eyes on another car which might be out of your purchasing power after the credit damage from your previous car.
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