Your credit score tells creditors how safe or risky a borrower you are, and having a car repossessed tells creditors you are a risky investment. In general, failing to repay a loan and having a creditor repossess the collateral is a negative event that will decrease your credit score, though how much your credit score lowers differs depending on the circumstances. A repossession will not harm your score forever, and you can begin repairing the damage immediately by acting like a responsible borrower.
Credit Score Factors
A credit score is a numerical representation of the information on your credit report. Credit reports contain a history of your actions as a user of credit, while the companies that create credit scores based on the reports use different formulas and weigh various factors differently. In general, your score is based on five factors: your payment history, length of credit history, number of lines of credit, the types of credit you have and the number of new forms of credit you've taken out. How much a negative event, such as a repossession, lowers your score is difficult to determine because of the multiple calculations and scores used.
Repossesion
A repossession happens when you fail to make payments to a creditor who has a security interest in your property. For example, if you fail to make your car payments, your creditor can repossess the car without having to sue you first. This repossession gets listed on your credit report and will have a negative impact on your score for seven years, according to Experian, a consumer credit reporting agency. However, the negative impact of the repossession is greatest when it first happens, decreasing over time. As long as you continue to pay your bills and have no more negatives on your credit report, the repossession's impact on your score will diminish over time.
Late Payments
A repossession doesn't typically occur until you fail to make payments on your loan. This late payment will itself lower your credit score even if a repossession never takes place. According to Yahoo Finance, if you have a 780 credit score before a late payment, your score can lower from 90 to 110 points simply for being 30 days or more late. If your score was 680 before the late payment, your score can lower from 60 to 80 points.
Lawsuit
In some cases, a creditor might both repossess your property and sue you in court. If, for example, you owe money on a car loan and fail to repay it, the creditor can repossess the car and sell it at auction to recover the remaining debt. If the amount the creditor recovers isn't enough to cover the debt, the creditor might sue you to recover the remaining debt. This lawsuit also gets noted on your credit report and will further damage your credit score.
0 comments:
Post a Comment