Everyone makes mistakes. That’s why pencils have erasers. If you’ve had your car repossessed, erasing it will not be so easy.
How long does a repossession stay on your credit report? And how do you erase a repossession from your credit report? It’s very hard to do, but it is possible in some cases.
What Is Repossession?
Some loans are secured by a piece of property, usually, the item that you bought with the loan. Car loans are among the most common secured loans.
When you fail to make payments on a secured loan, the lender can repossess the property.
Repossession can be voluntary or involuntary. Involuntary repossession occurs when the lender sends an agent to seize the property, like a towing company that specializes in repossessions.
Voluntary repossession occurs when the borrower surrenders the property to avoid any additional fees associated with involuntary repossession.
The lender will typically sell the repossessed item at auction. If they get less than the amount you owed on the loan, you may still be liable for the difference.
How Repossession Affects Your Credit Score
As you might expect, repossession has a significant negative impact on your credit score.
Repossession normally occurs after you’ve missed several payments on a secured loan. All of those missed payments will hit your credit score, and the repossession itself will hit it even harder. The cumulative impact can be dramatic.
How Much Could Your Credit Score Drop?
So how many points does a repossession drop your credit score? On average, a repossession will cause your credit score to drop by 100 points. But because credit scoring models are complex, the exact impact is hard to estimate.
A repossession can lower your credit score by anywhere from 50 to 150 points, depending on the scoring model used and your credit history prior to the repossession.
Is There Any Difference Between Voluntary and Involuntary Repossession?
Voluntary repossession involves the deliberate surrender of your property before the lender can seize it. So how much does a voluntary repossession affect your credit? Well, it can save you some fees associated with involuntary repossession, but unfortunately, it will make no difference in the impact on your credit score.
Lenders will not make a distinction between voluntary and involuntary repossession when they report your data to the credit bureau.
👉 Experian, one of the three major consumer credit reporting agencies, considers a voluntary repossession the same as a loan default.
How Long Does a Repossession Stay on a Credit Report?
A repossession will remain on your credit report for seven years from the date of the first missed payment that was not subsequently caught up. This applies to almost all negative records on your credit report.
This timeframe is identical regardless of whether it was an involuntary or voluntary repossession. Credit reporting bureaus typically regard the two as the same.
While the record will remain on your credit report for seven years, its impact on your credit score will fade well before then. Credit scoring models prioritize newer data.
How to Remove a Repossession from Your Credit Report
If you don’t want to wait seven years for the blemish to disappear, you may be able to use the following steps to get a repossession off of your credit.
1. Review Your Credit History
First, review your credit history to confirm that all entries are accurate and that the repossession is affecting your credit score. Don’t just rely on your credit score. Try to understand why your score is what it is.
You can obtain a free copy of your credit report from one of the three major credit bureaus without affecting your credit.
If your credit score is low, review all of the records to see what is doing the damage. The repossession may not be the only issue that is bringing down your credit.
2. Identify Any Errors
Once you have identified the records that are bringing down your credit, examine them carefully. Look for accounts that may not be yours or any errors in recording the details of your debt.
If accounts contain errors, you will be able to dispute them. You may be able to get them removed.
🤔 Did you know: 34% of all credit reports contain errors.
3. Dispute the Repossession
If there are errors or inaccuracies in the credit report entry dealing with your repossession, you can file a dispute with the credit bureau. The credit bureau will check with the creditor to verify your dispute.
If you can prove that the entry contains erroneous information, the credit bureau will have to remove it.
☝️ It is generally not worth disputing an accurate entry on your credit report. The credit bureau has no obligation to remove an accurate, verified report.
⚠️ Beware of anyone that claims to be able to remove accurate entries from your credit report. This is usually a scam.
4. Negotiate a Settlement (Before Repossession)
If you are facing repossession, you may be able to prevent it if you act quickly.
Lenders use repossession as a last resort. You may be able to negotiate a new settlement that offers lower monthly payments, which can make it easier for you to keep up with the loan. This is often your best option since it settles the issue before a repossession even occurs.
While the repossession won’t be on your credit report, your lender will still report your history of late payments, which can also drag down your credit score.
💡 Tip: If you know you are going to miss payments, don’t hide from the situation. Contact your lender immediately and explain your situation. They will often be willing to work with you to keep you current on your loan and prevent repossession.
5. Wait It Out
The worst-case scenario is that your repossession will stick to your credit report for the next seven years. If other options fail, you can simply wait for your repossession to vanish. This can also give you time to rebuild your credit so you can qualify for future loans.
As we said above, the impact of the repossession will fade long before the record itself disappears from your credit report.
How to Fix Credit After a Car Repossession
What if you can’t remove repossession from your credit report? You may have to wait seven years for the repossession to disappear on its own. The good news is that you can recover. You can’t change the past, but you can change the future. Focus on building a better credit record with positive new entries, and your credit score will improve.
1. Focus on Making On-Time Payments
The biggest factor that influences your credit score is your record of on-time payments, representing 35% of your credit score. Make a plan to pay your monthly bills on time every month. Use mobile apps to automatically transfer money to your creditors each month so you never miss a payment.
2. Lower Your Credit Utilization
Credit utilization refers to the percentage of your credit limit that you currently use. If you exceed 30% of your credit limit, it can start to impact your credit score. It’s best to keep it below 10%.
If you have a credit limit of $1,000, you need to keep your balance below $300 to meet the 30% criteria and all the way below $100 to meet the 10% criteria.
If this proves difficult, you can ask that your credit card provider raise your limit to prevent you from using such a high percentage.
Keeping credit utilization low typically means minimizing your credit card use, but that’s not such a bad thing. Making more purchases with cash will help you build financial discipline.
3. Avoid Applying for New Loans and Credit Cards
You may be tempted to apply for new loans or credit cards to tap into more working capital. But every time you apply for one of these options, you’ll experience a hard credit inquiry. The impact of these credit checks can add up quickly, so it’s best to minimize the number of loans and credit cards you apply for.
☝️ New loans and cards can also mean more debt payments and more chances to hurt your credit by missing a payment.
There’s Always Hope
A repossession can be devastating, both personally and financially. Your best option is to negotiate a settlement before a repossession occurs. If you can’t, you can still work toward rebuilding your credit score over time. And by developing sound financial habits, you can recover from the repossession and avoid future financial challenges.
