A repossession occurs when you default on an auto loan and the bank takes possession of the car. According to Financial Web, it's one of the most devastating things that can happen to your credit score.
Effects
According to FICO, 35 percent of your FICO score reflects how well you pay your bills. A repossession indicates that you defaulted on an auto loan and as such, it will lower your score. How much it lowers your score depends upon the other data contained on your credit report.
Significance
A repossession is a negative item and will remain on your credit report for seven years. This may prevent you from obtaining another auto loan from a traditional lender. Subprime lenders that specialize in bad credit may approve you, but it will be at a higher interest rate.
Warning
The repossession of the car does not end your legal obligation to repay the debt. The bank will sell the car at auction and then require you to pay the difference between what they got for the car and the outstanding amount of your loan. This is called a deficiency. The lender can then sue you for this deficiency and obtain a judgment against you.
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