Credit card debt and repossession are both usually bad for your credit, but repossession is much worse. In some cases, credit card debt can boost your credit score. If it comes down to a choice between credit card and repossession, you should almost always choose credit card debt. Ideally, you should not have credit card debt or a repossession on your credit report.
Identification
Repossession always wrecks credit history, because the lender has determined that you cannot afford the debt and must take back the property. Similar negative items can cost up to 160 points on your credit score. Credit card debt, on the other hand, might boost your score a little bit, because the credit bureaus only report positive history if the lender reports activity on the account. While you do not need to carry a balance, doing so does not hurt you nearly as much as repossession.
Considerations
If carry a credit card balance from month to month, it could hurt just as much or more as a repossession. You might, for example, continually miss payments on the account. When you do not pay for six months the creditor must write down the account as a loss in his account ledger. A charge-off account or account sent to collections further damages your credit.
Time Frame
The credit bureaus can only report a repossession for seven years and as each year passes, the repossession becomes much less important to the FICO formula. Credit card debt is always viewed as the "worst" type, because you can discharge it during bankruptcy, unlike a secured line, which is backed by some tangible asset.
Tip
You might be able to use your credit card to pay the monthly bill on your auto loan. This lets you keep your car and you can boost your score later by paying off the credit card. On the downside, the credit card's interest rate might be higher than that on the auto loan and end up putting you in a worse financial situation. If you lose the car, you still owe any remaining balance after the lender sells the vehicle. This might result in a judgment if you cannot pay and further damage your score.
0 comments:
Post a Comment