How Will a Car Repossession Affect My Credit?

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Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about credit scores; specifically, how something like a repossession will affect your credit and for how long.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “7 Ways to Boost Your Credit Score Fast” and “How I Got a Perfect Credit Score in 4 Steps” You can also go to the search at the top of this page, put in the words “credit” or “credit score” and find plenty of information on just about everything relating to this topic.

And if you need anything from tips on finding help with debt to finding the best financial advice, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance news and advice since 1991.

Today’s question comes from Dee:

“My daughter just had a truck repossessed. I’m helping her with her credit. Her score is 509 before the repo. How long will that stay on her credit?”

OK, Dee, let’s discuss.

Damaged credit takes time to heal

A repossession, like most credit injuries, takes time to heal. Late payments, missed payments, repossessions: Nearly every black mark will stay on your credit history for seven years. After seven years, the law requires that most negatives, including repossessions, have to be removed.

The good news, though, is that the older the injury, the less it hurts. So as things like late payments and repossessions age, they affect your credit score less.

How much will a repossession affect your credit score? Well, keep in mind that a perfect FICO credit score is 850, and you typically need a score of 750-plus to get the best rates on loans. Having your car repossessed would probably cost you about 100 points, depending on where your credit score is at the time. If your score is high, the effect of a repossession would be greater. If your score is low, the effect would be less.

Since Dee’s daughter’s score is already very low at 509, having her truck repossessed probably won’t cost her the full 100 points. Still, other than bankruptcy, foreclosures and repossessions are among the worst credit injuries.

A word of warning

Over the 30 years I’ve been doing financial news, I’ve run into tons of people with debt problems. I’ve written books on this topic and served on the board of a couple of major credit counseling agencies. Here’s something I’ve learned: Virtually everyone with a debt issue takes longer than they should to deal with it. They’re embarrassed. They don’t know what to do, so they freeze like a deer in the headlights.

This is the worst thing you can do.

If you’re unable to pay your bills, you could call the lender and try to work something out, or at least call a free, nonprofit credit-counseling agency for advice. But what do most people do? Nothing. They dodge the calls and leave the letters unopened. Result? Multiple wounds instead of one.

Take a car repossession, for example. First, you’re going to have late payments. That’s damaging your credit.

Then, you’re going to have the repo. That’s damaging your credit more, as well as adding towing and storage fees to what you owe.

Then, the vehicle is going to be sold at auction, likely for less than you owe on it. For example, if your loan is $10,000 and the car sells at auction for $8,000, now you owe another $2,000. The lender gets a deficiency judgment. And guess where that goes? Into the public records section of your credit report. Yet another black mark.

See what I mean? Ignoring a debt issue is like ignoring cancer. It’s not only not going away, it’s going to get spread and get worse.

Bottom line? Don’t ever be embarrassed if you’ve got a debt problem. Believe me, there are few money mistakes more common. But when you find yourself between the dog and the fire hydrant, the sooner you deal with it, the better you’ll sleep and the better off you’ll be.

Hope that answers your question, Dee. Now, what about you? Got a question of your own to ask? Then do what Dee did: Simply hit “reply” to any Money Talks email newsletters and fire away. I can’t answer every question, but I do my best.

And if you’re not getting our newsletter? Fix that right now by going to Money Talks News and subscribing. It’s free, takes five seconds and will absolutely, positively make you richer.

I’m Stacy Johnson. See you here next time!

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The questions I’m likeliest to answer are those that come from our members. You can learn how to become one here. Also, questions should be of interest to other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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