Your payment history and lines of credit, such as car loans or credit cards, are reported to the credit bureaus and affect your credit score. Late payments occurring before repossession are reported to the credit bureaus and reduce your credit score. A repossession, once reported to the credit bureaus, quickly decreases your credit score and increases your lending risk.
Late Payments and Repossession
Your credit report shows the amount you owe toward your car loan, the number of payments you've made and the number of days your payment was late. After repossession, your credit score decreases by at least 100 points or more. Repossession affects each individual's credit score differently, as length of accounts, past payment history or other unpaid accounts also affect your score. Regardless of the change in your score, future lenders can see that you didn't make your payments on time and your vehicle was taken back by your lender.
Past Due Amounts and Collections
Your past due loan balance remains on your credit report, which is the amount you still owe after the vehicle repossession. Your bank will resell the car after seizing it, but you're still responsible for paying the loan balance if the car was sold for less than you owe. If you don't pay the bank, it may transfer your debt to a collection company. The unpaid balance from the repossession still remains on your credit report, and a collection company can also report your debt to the credit bureaus, resulting in two negative accounts.
Judgments
If your lender sues you for non-payment, it can issue a judgment against you to garnish your wages. The judgment is reported to credit bureaus, appearing on your credit and on background checks for at least seven years. Even if you pay the loan balance, the repossession, judgment and previously past due balance still remain on your report. A judgment further damages your credit, even if the judgment is reported years after your repossession.
Settlements
If you decide to settle the account balance with your original lender or with a collection company, your credit won't immediately improve. The previously reported information does not disappear from your credit report and your account will read as "settled" rather than "paid." Expect to pay taxes on the unpaid portion of your loan balance. The Internal Revenue Service views the unpaid amount of a loan settlement as income, which you must report on your taxes.
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