Have you recently had some trouble making your car payments and faced repossession? Are you worried about what this may do to your credit score and ability to get a loan? Don't worry, because you're not alone in this. In 2019, 2 million cars across the United States were repossessed. That's the equivalent of 226 cars getting repossessed every hour. Of course, having your care repossessed will have a poor effect on your credit score, but how exactly will it hurt?
What happens to your credit score when your car is repossessed
Missing payments will always affect your score. If you've never missed a payment before, your credit will take a big hit as your on-time payment percentage lowers. This could cause a drop of over 100 points in some cases. A repossession could also cause the loan to be charged-off and cause a collection account to be opened to regain the money lost. The collection account will also hurt your credit and show up for up to 7 years.
Even if your car gets repossessed and sold off, you can still face consequences on your credit report. After selling the car, if there's still a difference between your balance and the amount the car sold for, you are still responsible for paying the difference. This means that even if your car is repossessed and resold, it will still show up on your credit report and collection companies may still come after you for any outstanding balance.
How can I improve my credit after a car repossession?
Well like most wounds, time can heal adverse credit as well. Most collections accounts will only stay on your account for 7 years and then be removed after that, so in this case, waiting could help a lot. Of course, if you have the cash, you could also pay the collection amount to get it removed from your credit. This would have the most immediate impact, but it only works for the newest credit models. Older credit models will still show the collection account and hurt your score.
However, a repossession will also show the late payments on your loans that caused it to go into collections. This will also affect your credit score and, unlike collections accounts, you can't pay it off. You will have the late payment on your account for 7 years. You can lower the impact of that late payment by making on-time payments for all your other accounts, since your payment history is the percentage of payments you make on time.
Another type of debt that can cause people issues is student loan debt. That's why Defynance is working on a student loan refinancing solution to help those burdened by student debt. Defynance refinances student loans using an income share agreement (ISA), instead of another loan. With an ISA, you only pay a small percent of your income for a set period of time, instead of a set payment. This means your payments are always affordable and will change as your income does. If you ever make under $25,000 a year, then your payments will pause until you start earning about that again. Check out the application here.
