How a Car Repossession Affects Credit

Those struggling to keep up to date with their bills should always prioritize their debts and concentrate on the most important ones first. Mortgages and rent are the highest priority debts, but the waters can become muddied when juggling other bills. When one takes into consideration the effect of the non payment of certain bills on credit scores it can help to put things into perspective.

Those with multiple debts should be aware that secured debts such as car loans should take priority over unsecured debts. Anyone struggling to maintain their car payments should note that the vehicle acts as collateral for the loan, thus repossession is a likely solution for the creditor. Whilst all late or missed payments have a negative impact on credit scores, repossession is actually listed as a separate item on credit reports and stays on record for seven years.

A car repossession will typically reduce ones credit score by between 50-150 points. The longer the monthly payments go unmet prior to repossession, the more negative the impact will be, as each missed payment drags the score lower. Although individuals can work to improve their credit scores after a hit by ensuring all future bills are paid in a timely fashion, the negative effect of a car repossession on ones score is longer lasting.

Car repossessions will be recorded on credit reports as a matter of public record for seven years. They will be noted by anyone who pulls the credit reports and the information will thus be available to potential employers, landlords, and other lenders who may make a judgment based on this information. Only after the seven years has elapsed can the individual make a written request to the credit bureaus to have the information removed.

Effectively this means that those who have a vehicle repossessed may work over time to improve their credit score, yet lenders and others will still be aware of the previous blip. Employers and landlords who run credit checks do not in fact have access to individual credit scores, but will be able to see a recorded repossession.            `

Car repossessions can actually continue to have a negative bearing on one’s credit even after the vehicle has been repossessed. If the creditor sells the car for less than the amount of the outstanding loan then the balance remains due. If collection activity is used to recover this debt then it will continue to impact negatively.

Although an actual car repossession will be a disruption, the consequences on one’s credit can be long term. Those facing such a reality should consider the damage to their credit which can ensue and avoid it if possible by establishing communication with the lender and attempt to make a payment arrangement.