How Much Does a Repossession Change Your Score?

If you take out a secured loan and then do not repay the debt, the lender has the right to repossess the property that you pledged as collateral. Repossessions appear as bad debts on your credit report and have a negative impact on your credit score. However, the degree to which a repossession affects your credit score depends on your length of credit history and the way in which you manage your other accounts.

Credit Bureaus

In the United States, Equifax, Experian and TransUnion compile consumer credit reports. These companies all use a scoring system that involves awarding you a credit score of between 300 and 850. You get a high score if you manage your credit well and a low score if you fail to repay your debts. Credit scores are updated every time a creditor submits a report to the credit bureau, and this normally happens at least once a month because most lenders report your monthly payment activity.

Repossession

Your failure to repay your debt has a negative impact on your credit score even before your lender repossesses your property. The bad debt initially appears as a delinquent account and this causes a drop in your credit score. The lender notifies the credit bureaus about the repossession and at this point the lender closes the account because it sells your property to settle the debt. However, even though the repossession leads to the closure of the account, a record of the bad debt remains on your credit report for up to seven years.

Scores

Your payment history accounts for about one-third of your credit score. If you only have one active account and that account ends up with a repossession, then your credit score could drop dramatically. If you have dozens of open accounts in good standing, then your repossession has less of an impact on your overall score. Furthermore, past credit events also positively or negatively impact your score. Someone with a brief credit history will see a sharper drop in her credit score as a result of a repossession than someone with a long and otherwise positive credit history.

Considerations

Credit bureaus place more emphasis on recent credit events than past credit history, so over the course of time, your repossession has less impact on your score. You can offset some of the damage done by your repossession by paying your other bills on time and keeping low balances on your open credit cards. Since no two people have identical credit records, credit events such as repossessions impact different people's scores to varying degrees. However, repossessions, like foreclosures, are seen as a danger sign by lenders. So even if your good credit history limits the drop in your score, you may find that lenders are reluctant to lend you money in the near future.