Do I Lose Points on My Credit for a Car Repossession?

If you cannot make your car payments on time, your auto lender will likely place telephone calls and send letters to compel you to bring your account current. However, if you do not make your past-due payments, your lender may opt to repossess your car. A repossession can affect your ability to commute to work or even run household errands; however, it can also affect your credit in several ways.

Repossession

After a lender repossesses your vehicle, it will report the repossession to one or more of the three primary credit bureaus -- Experian, Equifax and TransUnion. This report will stay on your credit file for seven years. The impact of a repossession on your credit score depends on your score before the repossession; however, it can initially lower your score by 100 points or more. The impact of a repossession entry on your score will typically decrease over time.

Loan Deficiency

The lender's primary goal in repossessing a vehicle is recovering as much of the loan balance as possible. After providing you with a state-mandated opportunity to reclaim the vehicle by paying the balance and repossession costs, the lender will typically sell the vehicle at a public auction. However, the auction sale price may not be sufficient to cover your obligations to the lender. You are responsible for the difference, called a deficiency -- if you do not pay the deficiency balance, the lender can report this amount to credit bureaus. This can cause additional credit damage on top of the repossession entry.

Deficiency Judgment

Failing to pay a deficiency balance after your lender sells your repossessed car can cause legal trouble -- the lender may sue you for the deficiency. The court will give you time to contest the lawsuit -- about a month, depending on your state's laws -- and will then award a judgment to the lender if you cannot raise a valid defense. A money judgment is public record and also becomes part of your credit file, which can further damage your credit score.

Considerations

Staying in touch with your auto lender is essential for avoiding a vehicle repossession and minimizing credit damage. Although your lender may still report late payments, these reports will cause less damage to your credit than a repossession or a deficiency judgment. Also, your lender may accept postdated checks, offer a repayment plan or defer your past-due balance to help you get your auto loan back on track.