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How repossession affects your credit score
Plus, tips to bounce back after your score takes a hit.
Falling behind on your car payments could put you at risk of repossession. And the road back to financial recovery can be tricky to navigate. But there are ways to potentially remove a repo from your credit report or just make up those lost points.
How does a repossession affect my credit?
Repossession can wreak havoc on your credit report in a few different ways:
- Late payments. Any payment that’s at least 30 days late may appear as a black mark on your credit report.
- Loan default. At your lender’s discretion, you could be in default of your loan within 30 days of a missed payment.
- Vehicle repossession. Once you’re in default, your lender can repossess the vehicle at any time, which is an additional mark against your credit.
- Deficiency balance. Your lender will likely sell your vehicle to cover its losses, but this may not be enough to cover the loan. You’ll be asked to pay the deficiency balance, which is the remainder of what’s owed on the loan.
- Collections. If you can’t cover the deficiency balance up front, your lender may send it to collections, which will also appear on your credit report.
- Judgment. If the collection agency sues you to collect the deficiency balance and wins, that will be another negative mark on your credit report.
How many points will a repossession drop my credit score?
The impact a repossession has on your credit score varies depending on your individual credit history and the scoring model used. But typically, a 100-point drop isn’t uncommon after an involuntary vehicle repossession.
How long will a repossession stay on my credit report?
A repossession stays on your credit report for up to seven years from the original missed payment date. But the negative impact won’t last forever — especially if you take active steps to repair your credit.
Can I remove a repossession from my credit report?
If you don’t want to wait seven years for a repossession to fall off your report, it’s possible to have it removed — but nothing is guaranteed.
A credit repair agency may be able to help you dispute any fraudulent or inaccurate credit report items. The credit bureau will investigate your claim and contact your lender. If your lender fails to verify that the repossession was valid or doesn’t respond to the dispute within 30 days, then the repossession is removed from your report.
You can also try contacting your lender to renegotiate. Your lender may agree to remove the repossession after you’ve paid off your outstanding debt in full, and it certainly doesn’t hurt to ask.
4 tips for repairing your credit after repossession
Rev up your credit score and recover from a repossession with the following tips:
- Clear your remaining loan balance. Even if your lender sells your vehicle to recoup its losses, you may still owe money on your car loan. Ask your lender if there’s a deficiency balance on your loan and do what you can to pay off the outstanding debt.
- Pay your bills on time. Making on-time payments is the biggest contributing factor to your credit score and one of the best ways to rehabilitate your credit after a repossession.
- Dispute credit report inaccuracies. Request free copies of your credit reports from Experian, Equifax and TransUnion to address any inaccuracies or errors.
- Drop your credit utilization ratio. Ideally, you want to utilize no more than 30% of your available credit. Anything higher than this debt-to-limit ratio and your score can suffer. Analyze your available credit and trim the fat to drop your credit utilization ratio.
Monitor your credit score
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Having your car repossessed can hurt your credit a few different ways, but it’s possible to recover. Take the wheel and steer your finances by communicating with your lender early and often.
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