Welcome to Fix My Finances, Yahoo Finance’s personal finance series. In each episode, we take a look at one viewer’s financial state of affairs and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
In this this episode we spoke with Lynn, a 35-year-old part-time student and full-time worker from Georgia who needs help rebuilding her credit. She has had the unfortunate experience of getting two cars repossessed, which dramatically hurt her credit score and has driven her credit card interest rates up to 22%
Repossession dramatically affects your credit
It’s important to know that having a car repossessed is very damaging to your credit score—it can cause a 100-point drop and will affect your credit for seven years. Two repossessions could completely ruin your credit.
Though the damage to your credit score can lessen over time, a repossession will still send huge red flags to auto lenders who could be reluctant to provide financing or only offer you prohibitively high-interest rates on loans.
Repairing the damage
In order to repair her credit, Lynn needs to prove that she has turned the ship around. One way to do that is to completely pay off her credit card debt and then begin making on time, in-full payments every month. The goal is not to carry a credit card balance at all. Doing so is not only expensive; it signals to creditors that you can’t afford current expenses to creditors and that you aren’t taking the necessary steps to undo the damage.