A repossession is a serious credit event and negatively impacts your credit report, similar to a foreclosure or a bankruptcy. The impact a repossession has on your credit score is different for every individual and is determined by a variety of factors. The following will explain the changes to your credit score and the rationale for the changes.

The Quick Answer

It is fair to say that a repossession will result in a decrease in your credit score of approximately 125 - 150 points. Keep in mind, the impact will be greater for individuals with a score of 750 or higher.

Why it hits harder than a typical late payment

Credit scoring models don't treat all negative marks equally. A few things push a repo toward the higher end of the damage scale:

• Your credit score drop will affect you for years to come and a score drop of 100-150 points is a big deal and will negatively impact you for many years.

• It isn’t a simple delay. A 30-day delinquency gets reported. So does repossession. However, a lender taking back collateral sends a much stronger negative signal about your creditworthiness.

• It usually isn’t only one negative mark. The account is often updated to show the repossession. The remaining balance (the amount still owed after the collateral is sold) is often left open or sold to a collection agency, and subsequently reported as well. So, the same event is often reported multiple times.

Why the same repo hurts different people differently

Because there is less negative history on the credit report, a repo and negative mark have a big effect on a score.

How the damage changes over time

The repo doesn't hit once and then sits at full strength for seven years. Its influence on your score fades in stages:

• Months 1–24: It has the most significant impact on your credit score and is considered a recent/recently-aged collection.

• Years 2–5: The effect slowly diminishes if no other negative information is reported to the credit bureau and the customer is making timely payments on other credit accounts.

• Final 1–2 years before it drops off: Considered a stale collection and has very little impact on credit score.

It is removed from the credit report after 7 years from the date of first delinquency. The date of repossession and/or date of sale of the deficiency judgment to collection agencies have no bearing on these 7 years.

The Effect of a Collection Deficiency Balance

After the repo, the deficiency balance gets collected and reported as a separate negative item. How the negative deficiency balance gets reported determines the additional impact it has on your credit.

• If the deficiency balance gets reported as an uncollected debt, it negatively impacts your credit utilization.

• If the uncollected debt gets sold to a collection agency, it is reported as a collection and gives you a double whammy because you now have 2 negative items on your credit report, the collection and the repo.

The difference in reporting of repossessions is because a repossession agency can choose to send a lump-sum payment to cover the deficiency balance, in which case the account would no longer be reported. Or, the repossession agency could choose to not send a payment to cover the deficiency balance, and instead send the account to collections. A deficiency balance sent to collections would then result in a greater impact to a credit report.

What makes it worse

• A newly derogatory event, such as a second late payment, can significantly increase the credit damage. Scoring models accelerate the decay of credit score when they detect a pattern of risk.

• What happens if the delinquency balance is collected and no effort is made to resolve the collection activity? The collection activity can be considered a second event, and the damage would be more severe. 

• Additionally, if a consumer seeks to take out new credit after a repossession, the hard credit inquiries and new accounts would increase the risk to the consumer’s credit profile.

What Eases the Credit Damage?

• Repossessions don’t remove the positive credit history of the consumer. Therefore, the positive credit history of the consumer is still factored into the credit score. 

• Additionally, low credit utilization of credit lines positively impacts the credit score. 

• A positive payment history of a secured credit line is reported to the credit bureaus and eases the credit damage. 

• Additionally, the average age of the consumer's credit accounts is factored into the credit score; therefore, not closing old credit accounts is beneficial to the consumer.

• Inaccurate dates and balances can be disputed to reduce the number of negative marks. For example, a repo cannot be removed, but having the sale date and/or sale balance reported differently from the original account can be disputed.

Frequently asked questions

Is an involuntary repo more damaging than a voluntary surrender?

Both affect your credit report and score in similar ways. A voluntary surrender may look better to a credit analyst.

Does removing the deficiency balance help credit score?

Although the repo note will remain, the collection will no longer be reported as an uncollected debt.

How much will my credit score be affected?

This is hard to say for certain. It is often estimated to be in the range of 100 to 150 points.

Will my credit score return to pre-repo levels?

This is usually the case. Although the repo note cannot be removed, if your credit report shows positive credit activity (i.e. on-time payments, low credit utilization, etc.), the impact of the repo note will continue to lessen.