How Bad Does a Car Repo Hurt Your Credit?

A car repossession occurs when a lender seizes a vehicle because the borrower has failed to meet the terms of their loan agreement, typically by missing payments. Since the car serves as collateral for the loan, the lender has the right to reclaim it to recover their losses. This action represents a significant negative event in an individual’s financial history.

Immediate Credit Score Impact

A car repossession leads to a substantial and immediate decline in an individual’s credit score. The exact number of points lost varies, depending on the individual’s credit score and overall credit history. Higher initial credit scores experience a more pronounced drop.

The impact can be 100 points or more, as payment history accounts for 35% of a FICO score. Even a voluntary repossession, where a borrower proactively returns the vehicle, results in a similar credit score reduction because it is still considered a loan default.

Specific Credit Report Entries

A car repossession results in multiple negative entries on an individual’s credit report. Before the repossession, a record of missed payments will appear, indicating delinquencies such as 30, 60, or 90 days past due. Each missed payment adversely affects payment history, a major component of credit scores.

Following these delinquencies, a specific entry denoting the repossession itself will be added to the credit report. This entry indicates that the vehicle was reclaimed by the lender due to non-payment. If the lender determines that the remaining debt is uncollectible after the repossession, they may report the account as a “charge-off.”

A common outcome after repossession is a “deficiency balance,” the remaining amount owed on the loan if the sale of the repossessed vehicle does not cover the outstanding debt and associated fees. This deficiency balance is also reported to credit bureaus as a debt still owed, further negatively impacting the credit profile.

Time Negative Information Stays on Your Report

Information related to a car repossession, including the repossession itself, late payments, and any associated deficiency balances, remains on a credit report for a specific period. This timeframe is seven years from the date of the first missed payment that led to the default. This standard reporting period is mandated by the Fair Credit Reporting Act (FCRA).

Even if the outstanding debt, such as a deficiency balance, is eventually paid, the negative record of the repossession remains on the credit report for the full seven-year duration. While the impact on the credit score may lessen over time as the negative event ages, the entry itself will persist. Consumers should regularly review their credit reports to ensure that any repossession entries are accurately reported and removed once the seven-year period concludes.

Other Financial Repercussions

Beyond the direct impact on credit scores and reports, a car repossession triggers several broader financial consequences. Lenders often pursue the deficiency balance. If the sale of the repossessed vehicle does not cover the entire loan amount, including repossession and sale costs, the borrower remains responsible for this outstanding sum. Lenders can engage collection agencies or initiate lawsuits to recover this debt, potentially leading to wage garnishments or bank account freezes.

A repossession makes it more difficult to obtain future loans, including new auto loans, mortgages, or personal loans. Lenders view a past repossession as a risk indicator, often leading to denials or offers with much higher interest rates, if approved at all.

A car repossession can influence other aspects of an individual’s financial life, such as auto insurance premiums. Insurers may perceive individuals with a repossession history as higher risk, potentially resulting in increased rates. A repossession record may also be a factor in rental housing applications or certain employment background checks.