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How Repossession Affects Your Credit Rating |
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Submitted by Martin Martinez
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Your credit rating is the most important part of your financial stability. You rely on credit for every part of your life - cars, credit cards, furniture, student loans, college tuition, and most importantly, the purchase of your home. Any negative credit issues can make a difference in whether you are extended any more credit, and in todays market, that can even affect the cost of your automobile insurance or obtaining the job of your dreams.
Of course, negative credit ratings are the least of your worries if you happen to be one of the many people who have run into credit problems and faced repossession.
Repossession, whether its your home, car, or other type of collateral, can seriously affect your credit rating and score. In reality, its a process that begins as soon as you miss the first payment since the credit grantor will report your payment history to one or more of the major credit reporting agencies. Each time you miss a payment, you will be reported again until the time that the creditor decides to obtain possession of the collateral in order to satisfy your debt.
Of course, lenders are less likely to repossess your home and tend to be willing to work with you, but they will not hesitate to pick up your car. The worst part is, they usually do it in the middle of the night while you are sleeping or they will go to your place of business - you either cant get to work or cant get home.
Keep in mind that in most states your payments have to be at least two months past due before a credit can claim possession, so that gives you plenty of time to work out a plan with the creditor if you have run into difficulty it may mean applying for a payment deferment if the situation is temporary, but for more extended financial setbacks, you may want to consider contacting a debt management counsellor in order to work out a payment plan between you and the creditor.
Although the credit may still choose to report this information to the credit bureaus, it is far less detrimental to your credit than a repossession or bankruptcy. You have to be careful with debt management, though, and make sure you choose a reputable company because your creditor is not obligated to accept the payment plan, so if you default, whether of your own doing or failure of the debt management counsellor to forward payments, the creditor will cancel the agreement and demand payment in full or the return of the collateral.
Although sometimes emergencies occur, you can avoid a potential repossession if you only take on loan payments that you can afford. Its very easy to be caught in a trap of high payments and when an emergency comes up, you are unable to provide the funds except by deferring payment on one or more of your loans. Making a budget and deciding ahead of time what you can and cannot afford is the best way to stay afloat financially.
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