How Much Does A Voluntary Repo Affect Your Credit?
How Much Does Voluntary Repo Influence The Credit?
Voluntarily returning your car or allowing it to be repossessed is typically done when one cannot continue paying for the car. Though it may alleviate the problem to a certain extent in the short term, a voluntary repo can be very detrimental to your credit score and report and thus come in the way of your ability to borrow money in the future. Below is a detailed description of how much a voluntary repossession can affect your credit score.
The First Impact on Your Credit Rating
Should you voluntarily repo a car for the first time, it is recorded as a ‘voluntary surrender’ on your credit report. Other sources indicate that after the first repo, your score could be lowered by as much as 130-240 points as stated by credit reporting agency, Experian. That is a massive blow, especially for borrowers who initially had a bad credit rating as well. The specific drop, however, depends on the initial score and the previous record of the player. However, the proportion is often not negligible, which is why it is referred to as significant in most instances.
Loss Duration and Continual Harm
Aside from a very low score on the repo, a voluntary repo also affects your credit score even in the future. In most cases, voluntary repossession is reported on your credit report for seven years from the time it is recorded. The repo stands out on your credit report during the window of seven years, through which potential lenders will view the repo when you apply for other auto loans, mortgages, credit cards, or any other form of credit facility. And even if the rest of your report is clean as a whistle, that voluntary surrender tends to make lenders think twice.
The chances of getting credit again are influenced by how long it has been since the surrender and the rest of the credit history along the credit institution. However, in most cases, you will find it difficult to access credit for between two and four years after the initial blow.
Other Potential Credit Damages
In addition to the primary consequences of the voluntary repo itself, returning your car to the lender can also cause other credit losses as well. For example, your auto loan is considered to be charged off by your lender which means that the lender has written off the balance as a bad debt that they are going to try and collect at some point in the future. This charge-off is in addition to the voluntary surrender mark and impacts your credit report a second time.
In case you had been living a life of pre-scheduled payments before deliberately repossessing, late payments were also probably reported monthly in addition to lowering your score. Also, after surrender, the lenders may sell the remaining balance on your loan to collection agencies who will be constantly calling and writing to you for payment. Negative information such as collections accounts reduces the credit score that you have on your credit. A single collections account is capable of lowering your credit to anywhere between 85 and 160 points.
To sum up, in addition to the initial voluntary repo, be prepared for a charged-off auto loan, potential late payments, and, perhaps, new collections accounts in the months following the surrender. And each is probably going to bring your score down slightly more.
Strategies for Rebuilding Credit
On the bright side, it does not mean that your credit is ruined for a long time because of voluntary repo. However, there are strategic changes you can make deliberately that will enable you to begin repairing your score. Some tips include:
- Reduction of other existing debts to assist in improving the credit utilization ratio. This ratio contributes 30% of the FICO score.
- Gaining an account on another person’s credit card with a good credit rating to improve your credit score.
- Applying for a secured credit card and charging lightly but responsibly, as a means of proving that you are capable of handling revolving credit once more.
- Waiting for some time not to incur other debts immediately so that the repo is removed from your credit report in seven years.
- Challenging all the errors you discover concerning the repo on the credit report by sending dispute letters to the bureaus.
- This is because several applications for credit within a short period will result in more hard inquiries which are detrimental to credit scores.
By employing such strategies as the ones mentioned above, one can regain their lost credit after surrendering their car voluntarily. Every small victory will add points gradually to get you back on a ‘good’ credit score range to be eligible for normal credit. However, the process requires an individual to be patient and ensure they do not accumulate other mistakes and debts.
In conclusion, the option of voluntarily surrendering your car means a definite negative impact on your credit score – from 130 to 240 points or even more, at least when the first report is considered. Your score will likely stay low for years after as you rebuild from this credit mishap or event. It is, however, possible to rebuild and get back on your feet and even restore your credit score with hard work and proper use of finance.
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