How Much Does a Car Foreclosure Hurt a Credit Score?

When you obtain a car loan to buy a car, your lender typically requires that you give it a security interest in the car that allows the lender to take the car back if you don't pay the loan on time. This failure to pay back the loan will negatively effect your credit score regardless of how good a credit history you had before it happened.

Repossessions

A car foreclosure, usually called a car repossession, occurs when a car buyer uses a car loan to buy the automobile and later fails to repay the lender in accordance with the terms of the loan. When this happens, the creditor reports the failure to pay to the credit reporting agency that creates the consumer's credit report, and this negative report is reflected in the consumer's credit score.

Credit Score

How much a repossession affects your credit score depends on the company that created the score as well as on other factors, such as your current score and your other credit-related activity. Though exact numbers are difficult to pinpoint, Yahoo Finance reports that a home foreclosure lowers your score by 85 to 160 points. A single late payment, on the other hand, lowers your score from 60 to 110 points. A car repossession likely falls somewhere between these two examples.

Collections

When a lender repossesses your car, this typically comes after numerous other negative factors have already impacted your score, such as numerous late payments or a referral to a collections agency. For example, if you fail to pay back your car loan for 30 days, that single late payment will lower your score. Once the lender repossesses your car or refers the account to a collections agency, that will add another negative item to your report that will negatively impact your credit score.

Impact

When your credit score falls because of a car repossession, you will have a more difficult time obtaining a new loan. Individual lenders have different interpretations of what qualifies as a good or bad score. Credit scores range from 300 to 850, and, in general, a person with a score of 720 or higher is considered a safe borrower, according to the Federal Citizen Information Center, while anyone with a score of 600 or below is considered "sub-prime," meaning he is a risky borrower. A car foreclosure is likely to lower your score below 720, and maybe below 600.