How Much Does a Repo Affect a Cosigner’s Credit Score?

Being a cosigner on a car loan can be a risky proposition, especially if the primary borrower falls behind on payments and the vehicle is repossessed. While cosigning can help someone with limited or poor credit qualify for a loan, it also means you’re equally responsible for ensuring the debt is repaid. If the borrower defaults, the repossession and missed payments leading up to it can significantly damage your credit score, even if you never drove the car or made a single payment yourself.

How Repossession Impacts Credit Scores

Payment history is the most influential factor in FICO® Scores, accounting for 35% of the total. Late payments, loan defaults, and repossessions all have a major negative impact on this crucial component of your credit score. A repossession alone can cause your scores to drop by 100 points or more, pushing you into subprime territory if you were previously in the good or excellent range.

The damage from a repossession can linger for years. Negative items like late payments, defaults, and the repossession itself will remain on your credit report for up to seven years from the date of the first missed payment that led to the repo. During this time, the negative marks will continue to drag down your scores, making it harder to get approved for loans, credit cards, and other types of financing.

Avoiding the Impact of Repossession

The best way to avoid the credit damage from a repossession is to prevent it from happening in the first place. If you’re the cosigner, stay in close communication with the primary borrower and monitor the loan to make sure payments are being made on time. If the borrower is struggling, work with them and the lender to find a solution, such as a modified payment plan or temporary deferment, before the loan goes into default.

If a repossession is inevitable, there are a few steps you can take to minimize the impact on your credit:

Sell the car yourself and use the proceeds to pay off the loan balance. This will avoid the repossession being reported.
Negotiate with the lender to accept the car in full satisfaction of the debt. This is known as a “voluntary repossession” and may be reported as such, which is less damaging than an involuntary repo.
Pay off any remaining deficiency balance after the car is sold. This will prevent the debt from being sent to collections, which would further damage your credit.

Even if you can’t avoid the repossession entirely, taking these steps can help limit the damage to your credit score and make it easier to rebuild your credit in the long run.

Rebuilding Credit After a Repossession

Once a repossession appears on your credit report, there’s no quick fix to make it disappear. The negative item will remain for seven years, and there’s no guaranteed way to get it removed early. However, you can take steps to rebuild your credit in the meantime:

Make all your other payments on time, every time. Payment history is the most important factor in your scores, so consistent on-time payments on your other accounts will help offset the damage from the repo.
Pay down balances on your other credit accounts. Keeping your credit utilization ratio low (ideally under 30%) will also help boost your scores.
Consider getting a secured credit card or becoming an authorized user on someone else’s account. These can help you build positive credit history and improve your credit mix.
Check your credit reports regularly for errors or fraudulent activity. Disputing any inaccuracies can help improve your scores.

With time and responsible credit behavior, you can recover from the damage of a repossession. But it takes patience and diligence to rebuild your credit after such a significant negative event. The best approach is to avoid repossession in the first place by staying on top of the loan and communicating with the borrower and lender if problems arise.