Does an Impounded Car Affect Your Credit Score?
Find out if an impounded car hurts your credit. Learn how the reasons for impoundment and associated costs, not the event itself, affect your financial standing.
An impounded car is a vehicle taken into custody by authorities, such as law enforcement or a towing service. Impoundment itself does not directly appear on a credit report. However, the circumstances leading to impoundment or the financial obligations that arise afterward can have indirect impacts on one’s credit score.
How Impoundment Relates to Credit Scores
Credit scores are a reflection of an individual’s financial behavior, not events related to vehicle custody. Credit bureaus primarily track elements such as borrowing and repayment history, the amount of available credit used, the length of credit history, and the types of credit accounts.
The potential for credit damage arises when financial obligations stemming from the impoundment, such as unpaid fees, fines, or loan balances, are neglected. These outstanding debts can eventually be sent to collection agencies or result in civil judgments. When a collection account or a judgment appears on a credit report, it can significantly lower a credit score.
Common Scenarios Leading to Impoundment and Credit Impact
Various situations can lead to a car being impounded, each carrying distinct financial consequences that may affect credit.
Unpaid parking tickets or traffic fines do not initially appear on a credit report. However, if these fines remain unpaid, they can escalate to a debt collection agency or result in a civil judgment. A collection account for such unpaid fines can remain on a credit report for up to seven years, negatively impacting creditworthiness.
Vehicle repossession due to a defaulted loan is another common scenario, where the loan default itself is the primary credit event. The lender reports the repossession to credit bureaus, which can cause a substantial drop in the credit score. Any missed payments leading up to the repossession also contribute negatively to the credit history. A repossession record can stay on a credit report for up to seven years from the date the loan stopped being paid.
Driving without valid registration or insurance can result in fines and penalties. If these fines are not paid, they can be sent to collections, which then impacts credit. While a DUI conviction does not directly appear on a credit report, the legal fees, court costs, and fines associated with such an offense can create financial strain. If these financial obligations are not managed, they can lead to collection accounts or judgments, which are reported to credit bureaus and can damage a credit score.
Financial Obligations and Their Credit Implications
Once a vehicle is impounded, financial obligations begin to accrue. Towing and storage fees accumulate daily. Administrative fees may also be charged by the impounding authority.
Impound lots have the legal right to place a lien on the vehicle for these unpaid fees. If the accumulated fees are not paid, the impounding facility can sell the vehicle at a public auction to recover its costs.
Should the vehicle be sold at auction, and the sale price does not cover all outstanding fees and any existing loan balance, a “deficiency balance” remains. This remaining debt can then be sent to a collection agency, resulting in another negative mark on the individual’s credit report. Unpaid collections are detrimental to credit scores.
Managing the Situation to Protect Your Credit
After a car has been impounded, taking swift action can help mitigate negative credit impacts. Paying towing and storage fees as quickly as possible is advisable, as these charges accrue daily and can escalate. Retrieving the vehicle promptly, when possible, prevents additional fees and reduces auction risk.
It is important to understand the rights and obligations regarding impounded vehicles, which vary by local jurisdiction. Researching local laws concerning impoundment fees and processes, including any available hearing opportunities to contest the impoundment or fees, is an important step. Communicating with the impounding agency or, in the case of repossession, with the lender, is also important. Some facilities or authorities may offer payment plans or fee waivers, particularly for individuals demonstrating financial hardship.
If a deficiency balance arises after an auction, engaging with the collection agency or lender to negotiate a settlement or establish a payment plan is beneficial. Consistently making timely payments on all other financial obligations and actively managing existing debt are important steps for rebuilding and protecting one’s credit score following an impoundment event.