How Does Repossession Affect Your Credit Score?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - October 8, 2019

When your car is repossessed, your credit score drops. How far it drops depends on where your credit originally stood. Generally, though, the higher your score, the bigger the drop is going to be. Let's take a look at how the different steps in the repo process affect your credit score, and what you can do to prevent a repossession.

4 Steps in the Repossession Process

It’s true that a repossession negatively impacts your credit score, but did you know that there are four steps involved in the repo process, and that all come with a hit to your credit?

Here's a closer look at the four steps in the repossession process:

  1. Default – First, you default on the loan. This is the catalyst that lets your lender repossess your vehicle. Depending on your contract, just one missed payment (which also drops your credit score) can result in a repo. The lender may also choose to repossess it after 60, 90, or 120 days past the late payment. Simply put, the later the payment, the bigger the drop your score takes, while a default drops it even further.
  2. Repossession – Once the car is repossessed, your credit reports show one of two codes associated with it: code 08 (repossession), or code 8A (voluntary repossession). This results in another hit to your score.
  3. Collection – After the repo, your vehicle is typically sold at an auction where the lender tries to sell it for reasonable market value in order to pay the loan balance. If the car sells but there’s a balance left, you’re responsible for paying it to the lender. If you’re unable to pay, the lender may send your account to a collection agency. The collection shows up on your credit reports, and your credit score is impacted yet again.
  4. Judgement – Depending on the lender and how much you owe, a creditor can sue and get a judgement against you. They can then collect the amount owed on your account through a wage garnishment.

Preventing Repossession from Happening

Did you know that it’s possible to stop a repossession from ever happening? If you take action early enough, you may be in luck. The key is to reach out to your lender before you ever miss a payment. Like you, your lender doesn’t want to go through the repo process, and may be willing to assist you.

If you have a good relationship with your lender, and you tell them what’s going on early enough, they may allow you to skip the next month’s payment and tack it onto the next payment, or at the end of the loan term.

If they don’t allow this, they may next suggest that you refinance the auto loan. This is only doable if there’s equity in your vehicle, your credit score has improved since taking out the initial loan, and you haven’t missed any payments.

If your lender isn’t able to help you out, your last resort option is to file for bankruptcy. This isn’t something you should take lightly, since it doesn’t always guarantee that you can keep your car. Plus, if you’re just struggling with your vehicle payment and not any other expenses, filing for bankruptcy may not make the most sense in your situation.

The Bottom Line

Repossession negatively affects your credit score, and you should take steps to prevent one from ever happening. Talk to your lender, explain what’s going on, and see what they can do. Even if they can’t help, at least you tried and let them know ahead of time.

If a repo has already negatively impacted your credit score but you need a car, let us help you. At CarsDirect, we’ve been connecting consumers to dealerships that specialize in bad credit financing for over 20 years.

Our service costs nothing and doesn't put you under any obligation. Let us show you how easy it can be to get back on the road and on to better credit. Just fill out our simple and secure auto loan request form to get started today.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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