Effects of Repossession on Your Credit Report
Missed Payments Can Lead to Repossession
Every time you miss a payment it gets reported to the credit agency. The more payments you miss, the more your credit score will be affected. A pattern of missed payments leading to repossession can prevent other lenders from extending credit to you. No lender wants to get stuck with bad debt.
Repossession Claim Initiated
In most states you must be at least two months behind on your payments before the lender can initiate a claim to repossess. If you've missed some payments, you should use this time to work out a payment plan with the lender.
When repossession occurs, your credit score will decrease and your other debtors can call in your debts or increase your interest rate.
Repossession and Your Credit Score
Reporting late payments and debt management will affect your credit score. However, it is not nearly as detrimental to your FICO as repossession is.
When repossession occurs you are responsible for the difference between what is owed and what the collateral that is repossessed sells for. For example, if your car is repossessed and sold for $2000 but you owe $3500 you will be left owing $1500. Your FICO score will be lowered from the repossession and it will be damaged even further when the balance owing is reported as delinquent.
The effects of repossession are devastating to your credit report. Be careful not to overextend yourself so that you don't find yourself with bad debt and facing bankruptcy.
If you find yourself in a situation where your debt problem will resolve itself in a short time, you can apply for a payment deferment. If you have a long-term debt problem, you should look into debt counseling to work out a payment plan that both you and your creditor can live with, otherwise you'll face repossession and likely bankruptcy.