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.

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Why Don't All Three Credit Bureaus Agree?

Each of the three credit bureaus, Experian, Equifax and TransUnion maintain a credit file on you that lists your debts and payment history. It is possible, however, for each credit bureau to assign you a different credit score.

Facts

All three credit bureaus use the same formula to calculate your consumer credit score. If the information contained in each credit report differs, however, you will be assigned a different score by each bureau.

Features

The data contained within each of your credit reports are provided by your creditors. Not all creditors will report your debts to all three credit bureaus. This accounts for any discrepancy in your credit scores that you may notice.

Significance

Lenders are aware of the fact that your credit score may vary depending on which credit report they pull. Because of this, lenders will sometimes pull all three of your credit reports to review.

Time Frame

Each account within your credit history can only appear within your report for a limited amount of time. Even if the account was originally reported to each credit bureau on a different date, all three are legally required by the Fair Credit Reporting Act to remove the information at the same time.

Considerations

Disputing an inaccurate entry with one credit bureau and having it removed does not guarantee that the other bureaus will also remove the item. Unless you report an incident of identity theft to the credit bureaus, they will not share your credit information with one another and thus your reports are not automatically modified.

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Will It Improve My Credit Score if I Consolidate Debt With a Home Equity Loan?

Debt consolidation can seem like a solution to many of your financial problems. It gives you the scenario of trading in several expensive loans for a single cheaper loan that would allow you to be debt-free sooner. The reality of debt consolidation is less rosy. If done correctly, it can save you money and even raise your credit score. For many people, however, a consolidation loan is just one more debt hanging around their necks.

Debt Consolidation

The basic concept of debt consolidation is simple. Take out one low-interest loan. Use that money to pay off all your small, high-interest loans. Instead of managing lots of bills, you only need to keep track of one. For most people who are in debt, though, a low-interest loan is a pipe dream. Lenders don't offer cheap credit to people with bad credit histories. To get a better deal, people take out home equity loans, using their houses as collateral. Secured loans come with lower interest rates, because the lender isn't taking as much of a risk as with an unsecured loan.

Debt Consolidation and Credit Scores

The biggest factor in determining your credit score is your repayment history. If you've missed payments in the last seven years, it will show on your credit report. Being as little as a day late can hurt your credit score. So if you're the sort of person who has trouble juggling lots of bills, a single loan may be right for you. It's easier to remember to pay one bill a month than a dozen. If a single loan means you won't miss any payments, then consolidating may be for you. However, there are some downsides. Lenders like to see a diverse range of debts, such as credit cards, car loans, mortgages, bank loans and store cards. By consolidating, you may be getting rid of that diversity. Moreover, consolidating can actually increase your overall debt, hurting the crucial debt-to-credit and debt-to-income ratios.

Warning

Even if you're willing to put up your house as collateral, consolidation loans aren't cheap. Watch out for hidden fees and massive charges. Before you sign on the dotted line, be sure that you can keep up with the payments. With a home equity loan, you risk losing your home.

Other Options

There are many reasons people fall into debt. The most common is chronic overspending. Consolidating your debt with a home equity loan will not change your spending habits. The only way to get out of debt is to consistently spend less than you earn. This will also increase your credit score. While they may seem complicated, credit scores are actually pretty simple. They tell potential lenders how creditworthy you are. If you want a higher credit score, you will need to become creditworthy. That means changing the habits that got you into debt in the first place.

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Can You Stop a Collection Agency From Reporting to a Credit Bureau?

When a collection agency receives a defaulted debt from your original creditor, it has the right to report that debt to the credit bureaus. Collection accounts that exceed $100 have a significant negative impact on your credit rating. In some cases, you can prevent a collection agency from reporting your debt to a credit bureau.

Features

Many collection agencies use the threat of bad credit as a negotiation tool, by noting that if you pay the debt immediately, the company won't file a report with the credit bureaus. Thus, paying the collection agency quickly can help you avoid the credit damage that its credit entry would cause.

Facts

If you know you don't owe the debt, the Fair Debt Collection Practices Act gives you the right to demand that the collection agency provide written proof that the debt is yours. Until the company does so, it cannot conduct any form of collection activity-- including reporting the debt to the credit bureaus.

Time Frame

The Fair Credit Reporting Act stipulates that records of your debt can appear on your credit report for only 7.5 years from the day you defaulted on the original account. If any collection agency threatens to insert a debt on your credit report beyond the legal time frame, threatening to sue the company for violating the FCRA demonstrates that you're aware of your rights. That threat will often motivate the company to follow the law.

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Is It Better for Your Credit Score to Close a Zero Balance Credit Card?

Lose Good Credit Reporting

When you have a credit score with no balance, the credit card company will report the card as being current every month, which will contribute to a positive credit score. In addition, your credit score will also benefit because you have a lower debt to available credit ratio.

Too Many Cards

The Motley Fool warns that the FICO scoring algorithm, the most widely used credit scoring model in the United States, penalizes people who have over seven credit cards.

Bottom Line

The Fair Isaac Corporation, the company that created the FICO credit scoring algorithm, warns consumers not to "close unused credit cards as a short-term strategy to raise your score." If you have more than seven cards, you may want to close some accounts, but you have better ways to raise your credit score that closing accounts with zero balances.

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How Long Does Eviction Stay on a Credit Report?

Introduction

The actual eviction is not usually found on a credit report, but the collection action to collect the past due rent is on the credit report and becomes part of your credit history. The actual collection attempt that shows on your credit report is what hurts your credit. The collection action lowers your credit score and can make it difficult to get another rental and other forms of credit, including credit cards or a mortgage.

Time

An eviction is a civil suit against a person for non-payment of rent. Pursuant to the Fair Credit Reporting Act, civil judgments (the results of civil suits) stay on your credit report for seven years. The seven-year time the collection stays on your credit report starts to accrue at the end of a 180-day waiting period, after the first attempt at collection.

Evictions

The actual eviction appears on tenant screening reports. A tenant screening report includes your rental history, credit history and criminal record. The tenant screening report may also contain your driving record, depending on the landlord. Information obtained for a tenant screening report is acquired from various agencies, including public records, motor vehicle departments and at least one of the credit reporting agencies.

Public Records

When you are evicted, a court action is filed against you. Court records are public records, which means that the public gains access to the information contained in your court file. When the landlord checks your history, he also checks public records for eviction and foreclosure actions.

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How to Rebuild a Credit History on Your Own

Living with a low credit score reduces your chances of acquiring a mortgage loan and other types of financing. There are numerous ways to rebuild or establish your credit history. And while some people choose to improve their FICO score with credit or debt management companies, it's possible to raise a low score on your own. The key is identifying factors that reduce your score, and making smarter decisions.

Instructions

1

Start a new line of credit. Rebuild your credit history by applying for a new line of credit. Open a secured credit card account with your bank, or consider applying for an auto loan to help boost your low score.

2

Be aware of your due dates. Open statements upon arrival and record due dates on a calender. Pay bills several days before their due date to avoid a late payment, or consider signing up for online bill pay.

3

Maintain self-control. Use credit cards for emergencies only to avoid incurring a large debt.

4

Regularly pay off balances. Get into a routine of paying off your credit card balance every month to keep your debts low.

5

Avoid judgments and collection accounts. Failure to make payments on your credit accounts can result in collection accounts and credit judgments. These remarks remain on credit reports for seven years. Negotiate payment arrangements with creditors to avoid negative accounts.

6

Monitor your report. Keep track of your credit report and score by ordering your report annually from websites such as Annual Credit Report. Check for errors and dispute inaccuracies.

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