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Keeping Score

How can I rebuild my credit after a car repossession?

Summary

The delinquent car payment that led to the repossession will stay on your credit report for seven years. However, there are ways to help your score recover in the meantime.

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Dear Keeping Score,

I co-signed for a car for my daughter six years ago. I had a credit score, but with all her late payments and repossession of the car my credit score is now barely 600. Anything I can do? -Ray

Dear Ray,

I’m assuming you mean that six years ago you had a good credit score. Then you co-signed for a car with your daughter and now you have a score of 600. Your story is a perfect example of why co-signing is almost always a bad idea.

Don’t get me wrong. I understand wanting to help out your daughter. Many parents would do exactly the same thing, and many have. And perhaps they have had the same outcome. I don’t believe anyone ever intends to be late with their car payments (or any payments, for that matter) and to ultimately have that car repossessed. But it does happen – all too often, I’m afraid.

Let’s talk first about why this affected your score in such a dramatic fashion. When you co-signed for the car with your daughter, you both became 100 percent responsible for the loan’s repayment. Your credit score took a small hit at the time due to the hard credit inquiry and the opening of a new account.

This hit would have recovered before long, assuming everything went according to plan and the payments were made in a timely manner. I can’t tell from your question when everything started to fall apart, but here’s some information to help you estimate when your score should begin to improve.

If six years ago there was an immediate straight-line progression of missed payments leading to a repossession, your wait will be over soon. Negative items stay on your credit report for seven years and then fall off. Once off, it’s like it never happened as far as your score is concerned.

If, however, as I suspect, there was a series of late payments followed by some on-time payments, then the seven-year clock didn’t start running until the final delinquency that led to the repossession began. This could have been one, two or five years into the loan.

Whenever it was, as the months and years pass you should begin to see some improvement in your score. This process will continue (slowly at first) until the negative item ages to seven years old and then drops off your report.

Credit damage lingers long after repossession

As I have discussed many times in this column, payments are the number one factor in credit scoring and make up 35 percent of your total score. Repossession – unlike a credit card charge off which can take 180 days of delinquency – can happen in a matter of weeks, depending on the lender.

Once the car was repossessed, it was likely sold at a wholesale auction and if the total amount due on the loan was not realized at auction, you were probably hit with a deficiency balance. As the events became more serious your score would have dropped more and resulted in the score you have today.

Even if this is all water under the bridge now, you need to know that any negative trade lines are going to stay on your credit report for seven years. As time goes by, their importance will diminish and your score will slowly start to climb back up. But this is going to be an extremely slow process. And if you are still facing a deficiency balance, your troubles aren’t over yet.

While you may have decided to ignore all of this until now, if you are sued and taken to court you need to show up and try to defend yourself. Not showing up is the worst thing you can do, because that guarantees you will lose. While having a 600 credit score is bad, having a judgment against you that needs to be paid is worse and could even lead to horrible things like wage garnishment. I know you don’t want that.

See related: How a car repossession affects your credit

How to jump start your credit score recovery

You asked what you can do to improve your score. Here are a few suggestions:

  • Keep balances low on any existing credit cards. By low I mean less than 30 percent of your maximum credit line. Lower would be even better for your score.
  • Make all existing payments on time and don’t close any existing accounts you may have. They are a source of positive credit history that will boost your score.
  • If you have no credit cards, it will be tough to open one with a 600 score. But you may qualify for a secured card. This will result in a small scoring dip in the first month or so after you open it, but the reporting of positive on-time payments will help offset the negative impact of your daughter’s issue.
  • If someone close to you has a good credit history, ask if they will help you out by adding you as an authorized user on a credit card account. There is no need for them to give you a physical card or even the account number. Just being on their account will result in their positive payment history showing up on your credit report too and boosting your score.
  • Lastly, I’m sure you don’t need me to tell you this, but don’t co-sign any new loans for anyone, ever.

Patience is key here, and I wish you the best of luck.

Remember to keep track of your score!

What’s up next?

In Keeping Score

10 tips to improve your credit score in 2019

If you want to improve your credit score this year, start by setting financial goals and knowing where you stand today. The five FICO credit scoring factors can guide you the rest of the way.

Published: January 3, 2019

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