How to Protect your Credit When You No Longer Have Your Car


Having your car repossessed or totaled in the middle of an auto loan can be a devastating financial situation. Protecting your credit is paramount. If you were fortunate enough to have the incident covered by insurance, then you have far less to worry about, but more often than not the car is no longer yours because of a loan default or an incident not covered by insurance.

The good news is that there is a way to crawl out of this hole of debt. It requires some digging, discipline and careful planning, but eventually you can get back on your feet and have your credit repaired. Here are some suggestions to go about it:

Work with Your Lender

The worst thing you could do is leave a communication gap between you and your auto lender. You can often negotiate a way to spread out the payments you owe, sometimes even keeping your car from being repossessed if you catch them early enough. Creating an agreement will save the lender money, so they have a motivation to work with you and reduce your costs. You definitely want to catch them if you still owe a balance after the repossession since they can take the issue to court as a next step.

Talk to a Lawyer

State laws govern what rights creditors have in certain situations. Your car loan provider just may have overstepped their bounds during the repossession, including them performing what is known as “a breach of the peace.”
Find a lawyer with a free consultation or who operates on contingency fees to weigh the facts of your case and determine if everything your lender did was kosher.

Dissect Your Credit Report

Regardless of the outcome, legal action or repossession actions can hurt your score. Take steps to repair it in any way you can by obtaining copies from all three major credit agencies. Pulling your score once a year will not impact you in most situations. Avoid signing up for services you do not need since you can often request the report directly from the agencies.
Look for any outstanding balances you could pay off quickly as well as any inaccuracies. Whittle down your blemishes one by one to get your score in better shape. This will help protect your credit.

Re-Establish Credit

Even if your vehicle was repossessed and you had no recourse, you can still repair the damage done to your score, albeit gradually. One of the easiest ways is to open a secured credit card line. You can also start a savings account at your local bank branch or credit union and then take out a “passbook” loan with the account balance as collateral.
If you have a family member who pays off their credit card debt on time, you can also be added as an authorized user on the account. Even if you never touch their card, their diligent payments will help rebuild your credit. Make sure all these activities are being linked to your credit score.

Be Frugal

Once you start to revive your credit, be careful not to hurt it all over again. Your best bet is to set aside savings for an emergency fund as well as a 15-20 percent down payment on your next vehicle. You should also avoid repeating your mistakes by not racking up debt on secured credit lines or your passbook loans. Keep your balances low enough so that you can pay off your bills every month, including your utilities.

Soon, you will be able to obtain a new vehicle loan for people with bad credit. It will probably not have as favorable of terms as your first loan, but after a year of timely payments you can refinance and be far better off than you were before. Good luck!

Meta desc: Having your car repossessed or totaled in the middle of an auto loan can be a devastating financial situation. Here are some suggestions to help recover and get you back on your feet.

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