Getting your car repossessed is never a good thing. It means that you’ve failed to meet the terms of your loan, and the lender has taken the vehicle back from you. Now that the worst has happened, you may wonder, how long does a repo stay on your credit?
What is a repossession?
A repossession, or “repo” for short, is when the financial institution that has lent you money to purchase a vehicle takes back (repossess) the vehicle due to your failure to meet the terms of the loan and make monthly payments. If you have taken out a loan on the vehicle, you do not own it (though you may be driving it). The financial institution that lent you the money actually owns the car.
If you do not pay the lender back and cannot refinance or come to another agreement, the lender can take the car to try and recover the money owed. Even small vehicle sales lots will put in a starter interrupt device (SID), letting them repossess remotely. So if you do not pay, the car will not start until it is taken back.
Keep in mind, each state has its own rules around how a repossession must be carried out. Usually, these involve a tow truck, but companies are prohibited from using physical force, damaging your property or taking the vehicle from a closed garage. Any personal possessions you have left in the vehicle must be returned to you.
How long does a repo stay on your credit report?
A repo stays on your credit report for seven years. The countdown for the seven years starts from the date of your first missed payment that caused the repossession. That may not necessarily be the same as your first missed payment, since most lenders offer you some leeway to bring the account back into good standing before moving toward repossession. Often, a lender will start by making attempts to communicate with you as the borrower to collect payment.
According to Experian, one of the major credit reporting agencies, “Whenever possible, Experian provides the date the account will be removed as part of the account information on a credit report. You may see a notation next to your account that reads ‘this account is scheduled to continue on record until MM-CCYY.’ The date listed there is the date the account will be removed from your credit report.”
How does repossession affect your credit?
As you might have guessed, a repossession is considered a derogatory mark on your credit. It can severely damage your credit and makes it harder for you to get other loans and open new credit cards.
To make matters worse, a repo can also run you deeper into debt. When the lender takes the vehicle back, they sell it to recover the lost money from the loan. If the sale does not cover all their costs (towing, impound fees, fees for auction, etc.), they can come after you seeking a deficiency balance. Often this results in your account being sold to a collection agency.
Can you get a repossession removed from your credit report?
A repo on your credit is not great. However there are a couple of things you can try to get it removed:
Negotiate and pay for deletion
When the lender has to repo the vehicle, they’ve lost money. If you can pay off your debt, it is often cheaper for them compared to selling your debt to a collection agency. In some cases you may be able to pay less than the monthly payments you owe. Taking this step can be a win for both parties. It may not affect your credit score and may also be a cheaper process for the lender. If you do get them to negotiate, make sure to follow their terms and get everything in writing.
This also involves negotiating with the lender, but unlike the previous options where you partially or completely resolve your debt, this requires you to appeal to the goodwill of the lender. Perhaps you’ve fallen into unfortunate circumstances like a job loss, an illness or a death in the family. In this case, the negative mark was outside of your control, and you can request that the lender remove the derogatory mark. It helps your case if this is a one-time incident and you’ve attempted to make payments and remain in good standing since the default.
Dispute the debt
If negotiation does not work, try filing a dispute. Lenders and collection agencies are bound by rules around when and how they can collect a debt. One of the key rules is that the lender must prove the debt is valid and belongs to you. Paperwork can sometimes get lost when debts are sold to collections or when financial institutions change ownership.
Sometimes simply asking the collector to produce proof of the debt can reveal that they don’t have evidence supporting it. It’s also a useful step to follow if you’ve gotten repossessed by mistake. If you actually have made a payment but the lender made an error, you can file a dispute and resolve the credit damage.
This isn’t the ideal option, but if all else fails, waiting seven years will see the repossession removed from your credit report.
How can I fix my credit after a repossession?
If you are looking to repair your credit after a repo, there are some things you can do to help heal your credit.
Bring any past-due accounts current
Past-due accounts with credit cards, utility companies or other loan types need to be current, even if they aren’t paid off. It’s always better to make a monthly payment or a partial payment than nothing at all. Bringing accounts current will show that you are taking ownership of your debts and will improve your credit.
Make car payments on time
Loans in any form are about trust. The loan provider trusts you will pay them back in a timely manner. Making payments on time shows trust between both parties, and as such your credit report reflects your reliability as someone to lend money to.
Going forward, make sure to pay attention to your due dates and the amount that’s owed at the time of payment. If you have a history of missed payments, the only way to fix it is to have an equally long history of on-time payments.
Pay off or consolidate outstanding debt
Large amounts of debt show that you may not be able to sustain paying off your loans at all. If you have a lot of debts to be paid, consider a debt-consolidation service that will combine all your debts into a new loan with a new interest rate. This can help you get a better handle on your debt and potentially lower your interest rates. It’s typically best used for high-interest-rate debts.
Lower your debt-to-income ratio
Your debt-to-income ratio can sound scary, but in reality it isn’t. Debt-to-income (DTI) simply means that all your monthly debts divided by your monthly gross income gives you a percentage. That percentage is what you need to be paying on your debts. If the DTI is too high, lenders will often see this as a negative and not lend until that DTI is paid down. Paying down DTI can help improve your credit score, even by a few points.
Lower your credit-utilization ratio
This is partially related to your debt-to-income ratio, but is more tied to your credit usage. Suppose you have credit cards that allow you to take out $100,000, and you’ve already put $90,000 on them. That makes your credit-utilization ratio 90%, which is staggeringly high. Most credit-reporting agencies recommend utilizing no more than 30% of your available credit. The lower your utilization ratio, the better your credit report looks and the higher your credit score.
Get a cosigner
Getting a cosigner may not necessarily repair your credit, but it can help you get loans despite having bad credit. A cosigner is a person–such as a family member or friend–who says they will pay back your loan if you are unable to do so. A cosigner provides the lender with more assurance that a loan will be paid and gives you more access to credit and potentially a better interest rate.
The biggest thing to remember is to maintain consistency with your payments. Even though you will incur interest, making the minimum required payments is still better than no payment at all.
A vehicle repossession is undoubtedly a derogatory mark on your credit report and can impact future applications for loans and other credit. Fortunately, there are ways to handle it, including negotiations with the lender, making partial payments and disputing the debt if there’s been a mistake or it’s been sold to a collection agency. And even if a repossession does occur, there are ways to fix your credit. Of course, the best thing is not to allow a repossession to happen at all.
Frequently Asked Questions
Should I pay off a repossession?
If you have the financial means, reconciling a debt owed is beneficial to your credit score. It may also help you in getting derogatory marks removed from your credit report and will show other lenders that you can be counted on.
How much will my credit score go up when a repossession is removed?
This will vary according to your individual credit history, including the age of your accounts, your credit utilization, your history of on-time payments and other factors. That said, you’re likely to see a significant bump to your credit score once a repossession is removed after seven years.
Can I get a car loan with a repossession on my credit?
It’s possible to get a car loan after a repossession. If it’s the only derogatory mark on your credit report and it was a long time ago and you have a history of on-time payments, other lenders will likely do business with you. Another option is to get a cosigner who takes on the debt if you fail to make payments. You’ll likely get a better interest rate with a cosigner as well.