A repossession is a negative item listed on your credit report that can hurt your credit score. Repossessions note the seizure of any assets due to late or delinquent payments. If a repossession is listed on your credit report, there are still ways to rebuild your credit and potentially get the listing removed from your credit report.

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How long do repossessions stay on my credit report?

A repossession can stay on your credit report for up to seven years. It may be harder to qualify for loans during this time because repossessions have a severely negative impact on your credit, and they can show lenders that you may not be able to make payments on the property you purchase..

How do repossessions affect my credit score?

When you have a repossession on your credit report, you can expect your credit to be negatively affected, but exactly how much depends on your credit situation. Here are some ways that repossessions can affect your credit:

  • Late payments: Items can be repossessed because you missed several payments. Those missed payments will likely show up on your credit report and hurt your credit.

  • Repossession: Once something has been repossessed, the lender usually reports it to the credit bureaus, and future lenders will see this.

  • Collections: If you still owe money even after the lender has resold the car, they might decide to hand over your account to a collection agency. That collection account can appear on your credit report and lower your score.

All of this would tell other lenders that you can't be trusted to pay back what you owe and as a result, they will potentially be less likely to approve new credit applications.

Why do repossessions happen?

Repossessions occur when a borrower falls behind on payments for an asset purchased with credit—usually for three months or more. If a lender thinks the owner is not going to catch up on payments, they may decide to repossess the property.

Repossessions are most common with car loans, but they can apply to any loan that involves collateral, like when you buy furniture on credit with a furniture store.

How do voluntary repossessions affect my credit?

A voluntary repossession, sometimes referred to as a vehicle surrender in the case of a car, is when a consumer can no longer make payments on the property they bought and voluntarily gives it back to the lender. There is a common misconception that a voluntary repossession is better for your credit than a forced repossession. In financial and credit terms, they’re very similar. 

Whether you voluntarily ask your lender to come and pick up their property or it's forcibly repossessed, the message is the same: you are unable to pay your loan and the lender is taking back their property.

One benefit of voluntarily surrendering your property is that it is less emotionally draining and embarrassing than having a forcible repossession, which can happen at any time and any place. Voluntarily repossessing your property gives you a bit more control and usually ends up costing less.

Do you still owe after a repossession?

Yes, a lender can come after you for money owed on the car known as a “deficiency balance.” Once a creditor repossesses the collateral, they usually try to resell it to recoup their money. For things that depreciate over time, like cars, the lender won’t recoup the full amount of the loan because the car is worth less than when the consumer first bought it.

When a lender sells items for less than what is owed, they’ll come after the purchaser for the difference.

Can I get a loan after a repossession?

The short answer is yes, you can still get a loan after a repossession. However, there are relatively few lenders who are willing to take a risk on someone with bad credit or negative marks on their credit report. Those who are willing may require you to pay higher interest rates and fees.

However, there are reputable lenders out there who have approved applications with repossessions on them. For better chances of approval and better interest rates, you can find someone with good credit to cosign the loan for you.

You can also work to improve your credit and payment history to make yourself a better candidate.

How to prevent a repossession

Many people go through financial troubles at some point. If you're struggling to stay on top of your payments, you should communicate this with your lender to see if you can change your payment plan.

For car loans, if you know your financial hardships are going to be temporary, you can talk to your lender and see if they’ll let you skip payments for a month or two. Some auto lenders allow this without penalizing you, but you need to communicate with them or else you will be penalized. Working things out with your creditor may prevent a repossession and allow you to keep the property.

How can I improve my credit after a repossession?

If you do get approved for a loan or a new line of credit after a repossession, making payments on time can help you build your credit back up.

If you dispute the repossession and can’t get it removed, then you need to give it some time. Your credit score will eventually improve and the repossession will come off your credit reports. However, as you open new accounts and make on-time payments, you should gradually see your score improve.

If you’re struggling with a low credit score or other negative items on your credit reports, Slate Credit Repair can help you through our suite of credit repair services. Our team of consumer advocates has helped clients work to challenge negative information that is unfair, inaccurate and unsubstantiated. Contact us today for a free, personalized credit report consultation.