The effect of repossession on credit is negative. Essentially, a repossession tells creditors what to expect from a debtor: late payments and defaulting on loans. Repossessions will typically lower a person's credit score and make it harder for him to secure credit and attractive interest rates in the future. Most financial experts agree that it is best to avoid a repossession if doing so is at all possible, but the effects of repossession on credit do not necessarily mean a debtor will never get credit again. Instead, it may mean that he will have to spend time and effort to repair his credit.
Interestingly, the negative effects of a repossession on credit may occur long before a person's property is taken away by a creditor. It may start, for example, when he begins to make late payments. If his payments are more than a month late, creditors are likely to report the delinquency on his credit report. This can result in a lowered credit score even before the repossession process starts. The longer the debtor waits before he makes the payments that are due, the worse his credit score is likely to become.
If a person has missed a few payments and the repossession process has yet to begin, he may still find it beneficial to make arrangements to catch up with payments. Most creditors would rather extend new credit to a person who had late payments but made arrangements to catch up than a person who failed to keep his property out of repossession. Additionally, if a debtor is unable to avoid the negative effects of repossession on credit but later repays his creditors and reclaims his property, this may look better to creditors than simply ending with a default. Unfortunately, however, the repossession will usually continue to blemish the debtor's credit report for a significant period of time.
Once a person has been through a repossession, he doesn't have to give up on his hopes of obtaining new credit. After significant time has passed with a good payment history, he may find it easier to get new credit. In some cases, he may even negotiate with his creditor to remove the negative information from his credit report in exchange for repayment. A creditor is not obligated to remove adverse information as long as it is true, however. As such, he may have to bargain for its removal before he makes payment rather than asking after the fact.