If you fall behind your auto loan payments or defaulted on a car title loan, your lender typically has the right to repossess or take back your car. A repossession is a way for lenders to recoup your debt. When this happens, not only will you lose your mode of transportation, it will also damage your credit score.
When a repossession appears on your credit report, this will negatively impact your future financial transactions. The sad truth, however, is that a repossession will continue to exist in your credit report for seven long years. Unless you’re willing to wait it out, you can try to explore some ways on how to get a repo off your credit report before the seven year period.
How Does A Repossession Affect My Credit Score?
The number of points that will be taken out from your credit score will vary depending on your individual circumstances, however, this point drop will typically range from 50 to 150 points. Take note that aside from the repossession itself, the missed payments leading to the repossession also play a role in chipping off points from your credit score.
If you plan to apply for mortgage, personal loans, or even credit cards, having a repossession included in your credit report may discourage lenders from giving you the best deals or you may not even be eligible for a loan if the repossession is very recent. This is because a record of repossession somehow gives out the message that you are not a good risk and you may be capable of making timely payments on the loan that you are applying for.
The impact of the repossession will lessen as the years pass, depending on whether you have improved your financial status. If you are able to rebuild your credit score to a good or very good rating, a repossession that is 4 to 5 years old may not affect you that much compared to its impact during the first year of repossession.
If the repossession on your credit report is the only negative entry that’s keeping you from reaching a good credit score and getting new lines of credit, you may want to try having it removed from your credit report.
Steps on How to Remove a Repossession From a Credit Report
Just like a bankruptcy that can live in your credit report for 7 to 10 years, you cannot get off a car repossession entry just because you want it to be gone, especially if it really happened. It is not as simple as asking the credit bureau to remove a valid repossession.
You have to go through a process of dispute and verification if you want to attempt removing a repossession from your credit report. Even if you follow these steps, there is no guarantee that you will be successful, but it is still worth a try.
If your car repossession happened recently (within 1 year), doing this process may not be worthwhile as it will be easier for the credit bureaus to verify the information.
Here are the steps of how to go about this process.
Step 1: Request a Copy of Your Credit Repo
You need to have a copy of your credit report to start this process. You DO NOT need to pay anyone or any online company to get a credit report. You are entitled to a free credit report every 12 months from each of the three credit bureaus – Equifax, Experian, and TransUnion.
You can order your free credit report online from AnnualCreditReport.com which is the only source of free credit report that is authorized by Federal Law.
Because of the Covid-19 pandemic, a bulletin on the AnnualCreditReport.com website states that you can request free weekly online reports through April 2021.
Step 2: Check Your Credit Report For Any Mistake Regarding the Repossession
Do you know that according to a study by the Federal Trade Commission, 1 in 5 people have an error on at least one of their credit reports? It is then very important to review your credit reports very carefully.
Compare all of your three credit reports and compare the repossession entry. You might spot a mistake or an inaccuracy. Common errors include spelling errors, loan amount, phone numbers, addresses, and more.
Step 3: File a Dispute With Your Credit Bureau by Sending a Dispute Letter
Send a dispute letter to request the removal of the repossession if you believe that there was a mistake or it was reported in error. Even if it was just a slight mistake, request that they verify the information as true and accurate.
Send the letter using certified mail and request for a Return Receipt. This is important so you have proof that they received your letter. You can use this sample letter to file your dispute.
Sample letter to the credit bureau to dispute a repossession on your credit report
The credit bureaus have 30 days to respond to your letter. They will either tell you that they have verified it and it is valid information, or they will be unable to verify it and as they are obligated by law, they will have to remove the entry from your credit report.
If the entry is removed, you don’t need to do anything else. If the credit bureau informs you that they have verified the information, you can proceed to the next step.
Step 4: Verify With the Lender Who Reported to the Credit Bureau
If the credit bureau tells you that the repossession entry is verified, your next recourse is to send a dispute letter to your lender. Sending this letter is in essence asking the lender to furnish proof that you defaulted on your payments.
Sample letter to the lender to dispute a repossession on your credit report
The lender has 30-45 days to respond to you. If they cannot verify or furnish the proof as you have requested, they must delete the repossession from your credit report. This is the reason why it may not be worthwhile to contest or dispute a recent repossession because chances are, it will be easier to track a recent repossession compared to an older one.
Another challenge is that as more companies are shifting to digital and electronic records, verifying the information could be a quicker process nowadays. Still, you might be lucky and the lender might still remove a repo from your credit report in case they are unable to verify on time or if there are indeed any errors.
Step 5: Consult a Credit Repair Company
Seeking out professional help from a credit repair company can either be your first or last option. If you have gone through all the steps indicated above and you’re still unsuccessful, consulting with a credit repair company could help.
Credit repair companies will not guarantee that a repossession or any negative entries will be taken off your credit report. However, their years of experience will be valuable as they can usually spot things on your credit reports that you may not have noticed before.
Credit repair companies can also help you review other negative entries on your credit report aside from the repossession. If you are unsuccessful with removing the repossession, you might still have a chance to rebuild your credit score if they can find other items that could be taken out.
On the other hand, if you do not want to deal with the dispute process yourself and you would rather pay a professional to do it for you, then contact a credit repair company from the beginning. This could save you time and effort especially if you want to start the process as soon as possible. In choosing a credit repair company, you have to be careful and diligent. Research the company carefully and read reviews before signing up with them.
If I Am a Co-Signer, Can I Remove a Repossession From My Credit Report?
If you cosigned a car loan, you are also liable for the loan payment with the lender. When the car is repossessed, the repossession as well as the missed payments could also appear on your credit report. You may also be liable for paying the loan balance if the sale of the vehicle did not satisfy the loan amount.
You can try to remove the repossession from your credit report by going through the dispute process as indicated in the earlier section or consulting with a credit repair company.
Another method is to challenge whether the auto loan lender went through the legal process as indicated by state laws with regards to informing you about the repossession. The lender is obligated by law to send you written notices as a cosigner on the following:
As a cosigner, you have the option to redeem the car yourself by paying a lump sum amount before the lender sells it. This option is also available to the primary borrower. If you have an excellent credit score, and you have the available funds to redeem the car, this might be an option for you rather than getting a repo on your credit report.
In some states, the cosigner and the primary borrower have the option to reinstate the loan.
The lender cannot just repossess the car and sell it without your knowledge. You and the primary borrower have to receive a notice from the lender when and where the auction will take place.
If the lender is able to sell the car, you and the primary borrower must receive a written statement regarding the amount the car was sold for and if there is a balance that remains. You and the primary borrower will still be liable to pay this remaining balance amount.
If you did not receive any written notice and you believe that the lender did not follow the finest details of the law when it comes to your rights during the repossession process, these can be possible grounds to dispute the repossession and get them to remove it from your credit report. In this instance, it is best to consult a credit repair company or a lawyer specializing in these matters.
What Happens When a Repossession is Removed From My Credit Report?
A repossession will only drop off from your credit report after seven years, then it will be like it never happened. If you are successful in getting it removed early, then this will also positively reflect on your credit score.
Whether you waited it out or whether you filed a dispute, the removal of a repossession on your credit report will typically put back the points that you have lost due to the repossession. If you lost 100 points, then you will usually get back around the same amount of points.
Ways to Rebuild Your Credit After a Repossession
Getting a repo off your credit report is not the only way to repair your credit score. Even if you are unable to get a repossession off your credit report, there are different ways to start rebuilding your credit.
Here are some ways to rebuild your credit even after a repossession:
1. Get a secured credit card. This will require you to pay a deposit but it is one of the most effective ways to rebuild your credit. Do not utilize your maximum credit limit. Only spend up to 30% of your credit limit.
2. Avoid late payments. A 30-day late payment could hurt your credit score by as much as 100 points, especially if you have a high credit score. This will also remain on your credit history for 7 years. Late payments occur when borrowers lose control of their finances or they start missing deadlines. To avoid this from happening, sign up for budgeting apps like Mint or Personal Capital that offer bill reminders.
3. Ask someone with a good credit history to add you as an authorized user. As an authorized user, you are not required to even use or know the card account number but your credit score will benefit from the primary user’s good credit standing. However, the risk of being an authorized user is that if the primary user suddenly starts missing payments or defaulting on payments. This will also reflect on your credit score so you should be careful as this would do you more harm than good.
Starting Over After a Repossession
A car repossession can be a stressful experience. You might think that the damage that it brought to your life is irreversible. However, there have been many accounts of people being able to rebuild their credit scores even after undergoing a repo. A repo is not the end of the world. You have a chance to slowly repair and rebuild your credit by learning how to be more diligent in handling your finances.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
