Property repossession can be a very overwhelming and confusing ordeal. It can leave a person feeling vulnerable and helpless. It can also leave you wondering if your credit score can ever recover. Keep reading to see what you can expect to happen to your credit score if you’re facing property repossession.
What Exactly Is Property Repossession?
Property repossession is when your creditor takes back their property without suing you first. The most common type of property repossession is car repossession. A creditor could repossess your car if you fall behind on payments. This happens to about 1.8 million people per year in the United States. However, creditors can take any type of property that is serving as security for a loan. This can include anything from a flat-screen television to a kitchen appliance. A property must serve as collateral for a loan or some other form of debt in order to be legally repossessed. The details of what can and can’t happen are somewhere inside the contract you signed with a creditor. Keep in mind that specific laws regarding repossessions vary by state.
How Does Property Repossession Affect Your Credit Score?
There’s no way around the fact that property repossession will severely impact your credit score. What’s more, this type of event will impact your credit in a multi-pronged way. The first ding comes when you begin making late payments or miss payments prior to repossession. The damage from late payments alone could linger on your credit report for up to seven years. That damage will then be compounded when the repossession actually happens. That’s because credit bureaus usually include notes regarding property repossession on credit scores. Those notes linger for up to seven years. It can actually get even worse from there. There is a chance that a creditor may hand over your debt to a collections agency if you still owe money on a loan. This is something that also stays on your credit report for about seven years. Unfortunately, this ding will linger even if you do fully repay the debt that is owed. If you fail to pay back the loan amount, then you risk being sued. A court judgment that orders you to repay a loan amount will also hang around on your credit report for seven years.
Can You Avoid Property Repossession?
It’s important to do everything you can to avoid property repossession. The first step is to speak with your lender if you are having an issue with making their payments. You might be able to defer payments or come up with some sort of restructuring plan to ensure that your credit score doesn’t take a hit. You should also face the fact that you may need to get rid of your car if you’re facing auto repossession. While this may feel like a tough choice, it could help you to avoid repossession and the negative impact that would have on your credit score and future ability to purchase a home or obtain any type of financing. What if auto repossession is imminent? You could try to get ahead of the situation by turning over your keys to your lender and taking part in what is called a voluntary surrender. This option will still have a negative impact on your credit score. However, the impact could be much softer.
Being Smart About Property Repossession
There really aren’t any easy choices when it comes to dealing with property repossession. Trying to hide from lenders or avoid consequences will only lead to bigger problems for your credit score. The smartest move is to be proactive about reaching out to your lender and cooperating if you are faced with the reality that you simply can’t make auto payments or loan payments. Dealing with the issue as quickly as possible will help you get back on the road to building up your credit for the future.