Title Loans often use the car as collateral for the loan. Typically, collateral is used in car loans and agreements leases. Sometimes there are situations when the borrower forgets or stops making payments. In this case, the lender can take back the car through repossession. A car repossession can have a huge impact on your credit. As a rule, a car repossession stays on your credit report for seven days. Thus, missed payments negatively affect your rating and worsen it. Moreover, lenders will see car repossession problems in your credit report for seven years.

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Credit rating deterioration reasons

There are a number of situations that can degrade your credit rating. Learn the main ones and don't repeat these mistakes:

  • One of the main reasons is late payments. As a rule, any loan has a maturity date, and if you are 30 days late, it will affect your credit report. Each month overdue is also marked in the credit rating. You may not be aware that payment history is the most significant factor affecting your credit rating. As mentioned, any late payment stays on your credit reports for 7 years from the time you missed the payment.
  • Loan default also greatly affects your credit rating. If you failed the agreement of the loan, 30 days after the due date, then your loan is considered unfulfilled. The lender may be able to soften your terms if you had a good credit history before. A defaulted car loan also will be shown on your credit reports for seven years from the day the loan became delinquent.

How bad does a repossession affect your credit?

Repossession is also noted on the credit report and affects it. That is why it is important to be attentive to such moments and try to avoid things that could negatively affect your credit rating.

Collections also can worsen your credit. When the vehicle is returned, the lender will usually resell it to recoup losses. More often than not, the car is sold at a price below your debt. in this case, you must pay the “deficiency balance, that is, the difference. Also, the lender may require you to pay costs such as storage. In case of non-payment of the amount and repossession fees, the account is transferred to the collection. The collections account also stays on your credit reports for 7 years.

How to improve your credit history after repossession

As a rule, lenders prefer borrowers with good credit history, as they can be sure that they will pay the loan on time. Thus, after repossession, you become a risky borrower for the lender. As a rule, these people are granted loans with higher interest rates. However, there are ways to improve your credit score. Explore the main ones:

  1. Make payments on time. Your credit rating is made up of several factors, and one of the most important is your payment history. If you pay each bill on time, your credit history will change for the better. It is also worth paying the payments in full to speed up the credit improvement process.
  2. Sometimes there are mistakes and inaccuracies in credit reports, so it is important to review it from time to time. If you find inaccurate information, you can request its removal and your credit rating will be improved.
  3. If you use a small portion of the available credit, it can improve your credit rating. Typically, the percentage of the loan used should be 30 percent or less. The less you use, the better your credit history will be.