If you fail to make timely payments on an auto loan for whatever reason, the lender will take steps to recoup their money. Depending on where you live and your loan terms, the lender might even repossess your car.
This presents a double whammy – you not only lose your car, but it will also bring down your credit score.
As a result, you lower your chance of getting a future loan from any financial institution, until you’re able to increase your score once again. Fortunately, there are ways to remove the repossession from your credit report. How?
Below we’ll discuss the nuances of repossession and what to do if you find yourself in this unfortunate circumstance.
What is Repossession?
If you fall behind on your vehicle loan payments, the lender may take, or repossess, the vehicle in lieu of payment. This process is known as repossession or a “repo” for short.
You can expect your lender to repossess your vehicle if you miss two or three payments in a row. However, a single missed payment can also result in repossession (though it’s less common).
The repossession laws vary from state to state, as do the number of payments you can delay before repossession occurs.
Typically, there are two types of repossession: voluntary and involuntary.
- A voluntary repossession occurs when you voluntarily return the financed car to the lender.
- An involuntary repossession happens when a repossession company seizes your car on behalf of the lender.
These two types will affect your credit score differently. While either may hurt your credit score. Voluntary repossession has a chance of working in your favor (with some lenders).
For instance, if you want to borrow money from the same lender in the future, they will sometimes be more willing to give you another chance if you cooperated previously. However, you need to remember that the terms and rate would be less advantageous because of the increased credit risk you now pose (due to previously missed payments).
Can a Repossession Be Removed From a Credit Report?
Fortunately, yes. There are a few ways to get rid of this negative item from your credit history. It will take a bit of legwork, but it’s worth the effort.
You can either try removing it yourself or hire a professional credit repair company. A professional might cost you a little bit, but if they are successful, it’s well worth the price.
Why? Every year, this is what these companies do day in and day out for thousands of people like you. They know who to contact, what questions to ask, and how to negotiate on your behalf. They’ll be far more efficient than if you go at it alone.
A repossession typically remains on your credit history for seven years. However, if you start to pay your bills, your credit score will increase and the impact will fade over time.
If you want to expedite this process, it’s best to work towards removing the repo as soon as possible.
How to Remove Repossession from Your Credit Report
Here are three ways to get a repo off your credit.
- Negotiate Payment Terms With the Lender
Instead of ignoring calls from your lender there may be an opportunity to speak with them and negotiate a lower payoff or enter into a payment plan. If the lender has already repossessed your car, you may be wondering how you can still negotiate a lower payoff amount. Well, the fact that you owe them money is actually a positive. This is your leverage.
The key is to get in touch with the right person. Once you have a decision maker on the phone, you can negotiate an exchange: paying back the debt or entering a payment plan in exchange for removing the bad entry from your credit report.
Make sure you get any agreed upon deal points in writing before making any payments.
If you’re strapped for cash or couldn’t get the right person on the phone, you still have options…
- File a Dispute
If you think the repossession on your credit report is incorrect, you can file a dispute with the credit bureau and get a repo off your credit report. There are three major credit bureaus:
In order to dispute a repossession, you need to write a repossession dispute letter and mail it to the bureau. The dispute letter should include the following:
- Payment terms and conditions
- Account numbers
Once you file a dispute, your lender will have 30 days to prove that the information is accurate. If they fail to do so, the repossession will be removed from your credit history.
However, the bureau would need valid information to either make corrections or remove the false information from your credit.
You can send the letter to bureaus, including your name, address, social security number, and account numbers.
Removing a repossession yourself like this is certainly doable; however, there’s no guarantee that it will work. For instance, if all information in your report is accurate or the bureaus don’t respond to your letter, it will be difficult for you to remove the repo.
- Hire a Credit Repair Company
If all of this is a little overwhelming (and we get why it would be!), consider hiring a credit repair company. A credit repair company has a streamlined process to complete the steps above and then some.
Yes, you would need to pay a monthly fee for this service, but it’s typically worth the money. The removed repo will pay for itself in the form of reduced interest rates on future credit products (loans, credit cards, mortgages, etc.) and will allow you to borrow money without a cosigner.
How Bad Is a Repossession on Your Credit Report?
Since everyone’s credit report is different, it’s hard to tell exactly how bad a repo is for your credit report. A wide range of factors are taken into account when calculating your credit score.
Therefore, it’s difficult to figure out “how much” it will affect your credit report. Be aware, however, that the impact will be significant either way. A reposession is worse than late or missed payments.
Why? It is the culmination of late payments, missed payments, and the repossession. If the lender hired a collection agency, this might even show up twice on your credit report! Once for the original lender and once for the collection agency.
If it reaches the point in which your lender takes you to court, and the judgement will appear on your credit report, lowering your score even more.
Rebuilding Your Credit After Repossession
Here are a few tips to help you rebuild your credit after repossession.
- Choose a secured credit card. You’ll have to put down a deposit equivalent to the credit limit, but it will help you improve your credit score through positive payment activity.
- Make sure to keep your debt balance low. Credit utilization (the amount you owe divided by the amount you are able to borrow) is a big factor in calculating credit score. Make every effort to minimize your spending.
- Make on time payments. The ability to repay your credit card and loan payments when you are supposed to is another significant factor in the calculation of a credit score.
- Consider applying for a credit-builder loan. It is one of the easiest ways to show the credit bureaus that you have the ability to pay a loan back on a regular schedule. This information is reported to the credit bureaus and will help you get back on track.
Hiring a credit repair company by far is the quickest and easiest way to get rid of a repo on your credit report. Yes, it may ultimately cost a few hundred dollars, but it’s a small price to pay to get it removed.