Unlike many other forms of debt, defaulting on your auto loan often puts you at risk of repossession. When faced with repossession, many people start to panic. The idea of losing your vehicle and subsequently ruining your credit seems daunting at best and terrifying at worst. It’s reasonable to worry about the long-term impact repossession can have on your credit health.
However, if you’re facing financial hardship, it’s reasonable to be worried about how a repossession may negatively impact your credit score. Below, we’ve answered some commonly asked questions about repossession and its long-term impacts on your overall credit health.
How Long Does a Repossession Stay on Your Credit Report?
One of the most common questions people ask when facing potential repossession is how long it stays on your credit report. Unfortunately, repossessions often remain on your credit report for seven years. Additionally, reclaiming your vehicle can also affect how your creditor reports the repossession. Therefore, it’s vital to discuss the reporting policies with your creditor to ensure accurate information.
How Many Points Does a Repossession Drop Your Credit Score?
Multiple factors determine how a repossession will impact your credit score. For instance, the length of your credit history, percentage of on-time payments previously, and other credit events can have an impact on how repossession affects your score. On average, a repossession tends to drop your credit score by about 100 points. However, this drop in your score can range anywhere from 50 points to 150 points based on your current credit history.
Does a Repo Ruin Your Credit?
One of the biggest concerns for many individuals is the concern that their credit will be “ruined” due to repossession. As we previously mentioned, a repossession can significantly impact your credit when it happens. However, responsible borrowing after a repossession and careful work to rebuild a positive credit history has shown that individuals who have a repossession in their credit history can often bounce back over time.
It’s also important to keep in mind that repossession can be removed from your credit report in various ways or can be reported differently based on the actions you take. For instance, if your lender repossesses your vehicle and you reclaim it by paying the amount owed to the lender, they likely will not report your vehicle to the credit bureaus as a repossession.
Additionally, some lenders will work with you on repossessions and update your report once you meet agreed-upon terms. Therefore, having your vehicle repoed doesn’t permanently ruin your credit, and there are ways to mitigate the long-term consequences.
How Many Points Will My Credit Score Increase Once A Repo Is Removed?
In most cases, having a repo removed from your credit report will help your score increase. However, it’s hard to pinpoint precisely how much your score will improve once your creditor removes the repossession from your record. Several factors can determine how heavily the removal impacts your score. For instance, the length of time the repo remained on your report can affect your score. On average, however, many individuals see their score improve anywhere from 75 to 150 points once they no longer have the repossession on their report.
Does a Voluntary Repossession Affect My Credit Differently Than an Involuntary Repossession?
Both voluntary and involuntary repossessions can drop your credit score. In the case of involuntary repossession, your creditor decides to take the vehicle once you’ve fallen behind on payments. Voluntary repossession typically indicates that you returned the car to the dealership or creditor when you could no longer make payments toward your outstanding loan balance. Creditors often lead borrowers to believe that voluntary repossession is better than involuntary. However, in most cases, voluntary repossession and involuntary repossession have similar impacts on your overall credit score.
Both types of repossessions are going to impact your credit score negatively. Some financial experts suggest that for individuals looking to get a new vehicle soon, voluntary repossession, instead of involuntary repossession, may provide some positive benefits and improve your chances of securing another auto loan. However, when looking at the overall impact on your credit score, you likely wouldn’t see a significant difference when comparing decreases caused by both.
How Can You Remove a Repossession From Your Credit Report?
You can remove repossession from your credit report in several different ways. The first, and for many, most common way to get repossession removed from your credit report is to wait it out. In most cases, a repossession falls off your credit report in seven years. If you have time to wait, this is the most reliable way to get it removed. However, other solutions can resolve this issue more quickly.
Check items such as the date, balance, payment terms, account numbers, and other information for accuracy. You can dispute any incorrect information with the bureaus directly. For instance, if you see that the repossession on your credit report contains erroneous information, you can potentially fight it to have it removed from your credit file. However, you will need to provide relevant information in your dispute, proving the inaccurate information on your credit report.
Ultimately, a repossessed vehicle often has a significant negative impact on your credit score. However, a carefully constructed game plan can help you recover in a reasonable timeframe. Additionally, many lenders allow you to reclaim your vehicle from repossession by paying the current amount due. Regularly reviewing your credit history for inaccuracies can also help you find new ways to dispute and remove outdated or incorrect repossessions from your credit score.