How Does a Car Repo Affect Credit?

Car repossession can affect your credit history for up to seven years. However, the actual impact depends on your credit score before the repo date and on actions you take after the repossession occurs. Though your credit score will have already started dropping in the months leading up to the event, it will take another significant hit when your lender informs the credit bureaus about the repossession.

Even One Skipped Payment Matters

Payment history accounts for 35 percent of your Fair-Isaac Corporation credit score, which is the standard used by most lenders. Although late or skipped payments will always have an impact, where your score lies within the 300-to-850 point range when you miss the first payment makes a difference. According to Equifax, a 30-day delinquency could cause a FICO score of 780 to drop 90 to 110 points, while a FICO score of 680 could drop 60 to 80 points.

The Effects of Repossession

Just as with missed payments, the higher your credit score when the repo occurs, the greater the point drop will be. Only a bankruptcy can have a greater effect. According to Steve Bucci, an author and personal finance expert, the reason for the differences between how much scores drop is that a pre-missed payment or repo score reports how you handled credit in the past and a post-repo score reveals your true risk profile. Regardless, the result can be a drop of 60 to 240 points, depending on your credit score at the time of the repo.

Post-Repo Effects

Financial liability usually does not end after repossession. Most lenders sell the vehicle at auction, usually for less than the balance of the loan. You not only become responsible for paying any deficiency, but also responsible for paying fees associated with the repossession and the sale. The result is that you are still financially responsible for a car you no longer own. Failing to pay on this debt can affect your credit even further.

What About Loan Reinstatement?

Some state consumer protection laws have reinstatement provisions that allow you to reclaim your vehicle and reinstate the loan. A loan reinstatement usually requires that you first make the loan current, which includes paying your lender's repossession expenses. According to Experian, a reinstatement won't erase the repossession entry from your credit file. However, it will show that the loan is once again active and current. Your credit score will improve as long as you continue making on-time payments.