When it comes to derogatory events and negative credit items, there are very few things that can damage your credit report and credit score like a repossession. Not only can they reduce your credit score considerably, but once they’re on your credit report they can make it challenging to even obtain financing again for several years.
That said, many repossessions are not valid and still show up on credit reports. There are even times when a valid repossession may be reported to your credit history with inaccurate information that can cause disproportionate damage to your credit, due to the error. Here’s how you can remove repossession from your credit report, and some tips to reduce their negative impact otherwise.
What Is a Repossession?
Repossession, in general, is taking possession of the collateral or security for a loan that was defaulted on. The most common type of repossession is with vehicles. When you are given an auto loan or provided financing for a new car, you agree to certain terms and stipulations concerning the repayment of that loan. In most cases, failing to make your loan payments and falling behind may cause the lender to take the vehicle back to offset its losses.
There are two types of repossession, voluntary and involuntary. A voluntary repossession is also known as a surrender and occurs when the borrower communicates with the lender to turn over possession of the vehicle. An involuntary repossession often occurs when the borrower has missed several payments and is not in communication with the lender, so a repossession agent is sent out to recover the vehicle.
There is often no difference between a voluntary repossession versus an involuntary repossession, by the time it gets to your credit report. You’ll have the same late or missed payments noted in the payment history, as well as the repo itself. The only benefit to a voluntary repossession is that if you ever want to try to get financing from that same lender in the future, turning the car over could improve those chances since you cooperated with the recovery efforts.
Why do repos happen?
Typically, a repossession happens once you’ve fallen 30-90 days behind on your auto loan payments. The loan that is provided to you by the bank is secured by the vehicle itself, meaning your car or truck becomes the loan collateral. This also means that until you pay the loan off in full, you aren’t the owner of the vehicle, the lender is. They technically paid the dealer for the vehicle, and you’re paying them back while being allowed to use the vehicle.
Just about every auto loan contract in existence gives the financer, lender, or dealer the legal ability to repossess the vehicle under certain circumstances. Generally, those circumstances simply require the loan to be in any stage of default. Many states do not require the lender to notify you that they are going to repossess, they can just show up and take the vehicle back. Once repossessed, most vehicles are sold at auction to try and recover the balance of the loan.
Can I Stop a Repossession?
If your vehicle has not yet been repossessed, you may be able to delay or prevent repossession entirely. This is a great opportunity to stop major credit damage before it happens. If you are in default and at risk for repossession, you should:
- Contact your lender, first and foremost. In many cases, being in communication with them will make them more agreeable to payment arrangements, even if they are partial payments made between each payment due date.
- If your credit is still in reasonably good shape, you may want to ask about refinancing the loan with another lender that may give you better terms. This can help reduce your payment amounts and make your payments more manageable.
- Look into a more affordable vehicle with lower payments that you may be able to trade in your current vehicle for.
- Look into a personal loan with a lower rate that can be used to pay off your existing auto loan. This won’t relieve you of monthly payments, but it can make those payments lower if a loan is found with better terms than the auto loan.
How does a repossession affect my credit score?
Since repossessions are a major derogatory event, similar to a foreclosure, credit scoring models like FICO and VantageScore will see your score drop significantly. Since every credit report is different, and scoring formulae are not released to the public, there is no way to accurately predict what a repossession will do to any particular consumer’s credit score.
The score reduction that might be seen in a consumer with a 520 FICO will be far less than the reduction in the score for a consumer with a 780 FICO. No matter how you look at it, a repossession will cause considerable damage and will lower your credit score.
What Happens During a Repossession?
While some people may see repossession as unfair, even illegal, repossession is a process in which the collateral for a loan is rightfully and lawfully seized. Once the property has been repossessed, the most common technique is to sell the property at auction in an attempt to recover what was owed on the loan. No matter what the property is, or how much is owed, the creditor or lender must adhere to all applicable state laws regarding repossession, including notifying you of what they will be doing with the property.
In some cases, you may have the chance to buy back your vehicle, for the full amount owed, before it goes to auction. While this may not be feasible for those who still owed a considerable sum on their loan, someone that was close to paying it off may be able to pay it. You may also be allowed to attend the auction to bid on your vehicle, buy it back and settle your loan troubles.
How long does a repossession stay on your credit report?
While the FCRA, or Fair Credit Reporting Act, limits the time that derogatory items can stay on your credit report, that limit is still considerable. Your repossession can stay on your credit report for 7 years, beginning from the date they became 180 days past due.
Can I Get a Loan After a Repossession?
Many lenders will still approve a loan application from someone with a repossession on their report, however, you should not expect the terms of the loan to be as good. You will likely need to compromise with your interest rate expectations since having a repossession on your credit report will cause lenders to impose much higher APRs to offset the risk of lending to you.
Can Repossessions Be Removed from a Credit Report?
There are some situations where a repossession can be removed from your credit report, but you should know that it’s going to be challenging for the average consumer to do. If you intend to try to remove repossessions from your credit report, the fastest option is often to use a reputable credit repair company.
Can a repo be removed from your credit report?
If the repo claim is accurate, removal will be more difficult than it would be for a repossession that never happened or was a mistake. If the repo is accurate, but there are incorrect details in the credit report item, you may be able to have it removed, and if it cannot be removed, the creditor is legally obligated to correct the errors to reflect the correct information.
What If I am the Co-Signer?
If you were the co-signer on a loan for someone else, you agreed at that time to be a guarantor of the loan. This means you became equally responsible for the debt that was created, and for the payment of the debt as agreed. This means that if the original borrower can’t pay, you have agreed to pay for them. This also means that if you are in an area where debtors can be sued for loan balances, you may be on the hook as well.
Should I Pay Off a Repossession?
The impact paying off a repo has on your credit is a coin flip, depending on the scoring model the lender uses, and there’s no way to know ahead of time. Some scoring models will ignore collections accounts with a $0 balance, while others will treat it the same as any other item in the collection. If you can, however, you should pay it off. Failing to pay can put you in more trouble later on.
What Happens If I Don’t Pay a Repossession?
The biggest concern is that in many cases, the lender can sue you. This will often result in you losing and having a judgment placed against you. This judgment can show up on public records searches and can count against you for home loans and even employment opportunities.
How Can I Dispute a Repossession on My Credit Report?
There are several ways to dispute a repossession on your credit report. Here are ways to do that.
Hire a credit repair professional
Hiring a credit repair professional is one of the fastest ways, but also one with the highest risk. Sometimes it will work, sometimes it won’t, but you’re going to pay the credit repair service anyway.
Dispute the repossession with a credit bureau.
If there are errors in the credit report item, or if the repossession isn’t valid, you can dispute directly with the credit bureaus that report the item by addressing credit bureaus a credit dispute letter.
Follow up with all the credit bureaus
Once you have disputed the item, make sure you follow up on correction or removal. The credit bureaus are obligated to remove the erroneous items within a set amount of time.
Contact the lender
If you have payment arrangements with the lender, reach out to them. While they may not be able to remove the item, they may be able to report it as “paid as agreed” or something else that won’t cause as much credit damage.
Moving Past a Repossession
No matter how embarrassing, repossession isn’t the end of the world. It isn’t even the end of your credit. Be mindful of your credit in the future, make sure that you only take out loans that you can commit to paying off, and take steps to build your credit in the meantime so that when you do apply for another loan eventually, you can enjoy better terms and lower payments.
Can I be sued for the remainder of the balance?
In many cases, yes you can be sued for any remaining balance due after repossession. Many states require that the vehicle be auctioned off to offset the balance due, but many also allow the debtor to be sued if the auction price does not cover the amount due on the loan.
Can I get a car loan after a repossession?
Depending on who you apply with, you may still be able to get a car loan following a repossession. The caveat, however, is that you will likely pay much more to borrow that money in the future. Your interest rates will be higher, and other terms may not be as favorable either.
