Repossessions Have Serious Effect on Credit Score
Your credit score affects not only your ability to get a loan, but the interest rate you pay and many other aspects of personal finance. A car repossession is a big black blotch on your credit score. Contrary to popular belief, a voluntary surrender has the same negative impact on your credit report as a repo does. After all, as credit blogger John Ulzheimer reports, “Credit scores aren’t meant to evaluate the ethics involved with lending.” It’s simply a cold, hard calculation of the likelihood you will pay future bills. A negative trade line reporting repossession may stay on your credit report for up to 7 years. That is a long time to be in financial purgatory.
For this reason, in actions Kemnitzer Barron & Krieg bring to challenge unlawful repossession notices, deletion of the negative trade line from the credit report is on the list of remedies we seek. In the last few years, we have succeeded in requiring lenders to make efforts to halt reporting of more than $250,000,000 concerning repossession accounts. Some recent class actions involving this remedy are reported here.
Why does it matter? Beginning in the late 1980’s, FICO (Fair Isaac Corporation) and other credit scoring sources developed algorithms (mathematical formulas) and software that generate consumer credit scores from data collected by credit bureaus like TransUnion, Experian and Equifax. Some credit bureaus in turn license FICO’s credit-scoring systems to provide credit scores to lenders, insurance companies and consumers themselves.
Designed to predict consumer behavior, credit scores determine who gets approved or rejected for car loans, insurance, mortgage and credit cards, with the lowest rates going to consumers with the highest scores. Since the people least able to pay end up spending more in higher interest, this system locks in a vicious cycle of credit and debt.
Credit bureaus and FICO itself keep the formulas secret, labeling them “proprietary information.” Consumer advocates have long been troubled by this secrecy. It is one thing to keep the recipe for Coca Cola or KFC out of the public eye, but it is another to bar transparency of a system that can wreak havoc on millions of Americans’ financial lives. While the precise algorithms remain unpublished or under protective orders, you can get a sense of how the formula works here and here.
Regardless of the precise equation, it is clear that a repossession, which impacts both “amounts owed” and “payment history”, has a huge negative impact on the overall score. Of course, the best thing to do is avoid having your car or truck repossessed in the first place. If you are having trouble making car payments on time and risk a repossession, check out the advice from the Federal Trade Commission here. The FTC explains, “Once you are in default, the laws of most states permit the creditor to repossess your car at any time, without notice, and to come onto your property to do so.” Sometimes there are defenses to these repossessions or collection of the deficiency charges that follow. If your car has been recently repossessed, contact us.
