When you stop making payments on an auto loan, the lender will take the vehicle back. In lending terms, this is called repossession. Read on to find out how to remove an invalid repossession from your credit report.
A repossession could happen in two ways:
- You could surrender the vehicle voluntarily and retain some control over the process.
- The bank could send someone to reclaim the vehicle — often without notifying you in advance.
Either kind of repossession hurts your credit score. The negative item could crush your credit score if you have good credit otherwise.
What’s worse: You could still owe money on the car loan, even after the repossession, if the bank can’t pay off your balance by selling the car. This will make your bad credit even worse.
Can A Repossession Be Removed from Your Credit Report?
Yes, if you have a repossession in your credit history you have a few options to remove this negative item from your credit report.
You could try to remove the repossession yourself, or you could hire a professional credit repair company to help remove the negative mark.
Calling in the pros will cost several hundred dollars, at least. But a lot of consumers find the cost worthwhile because the credit repair company does all the legwork while you live your life.
But if you’d like to take the DIY credit repair approach, here’s how to go about it:
Steps To Remove a Repossession From Your Credit Report
1. Negotiate New Payments
Your first option is to start negotiating with your original auto lender. This could be a bank, an online lender like Capital One, or the in-house finance company at the dealership.
You may be wondering how you could possibly negotiate a deal after the lender already repossessed the car? That is a very good question.
Your leverage is the fact that you owe money. If you can get the right person on the phone — someone with the authority to make policy decisions — you can propose a deal: Paying off the balance of the loan in exchange for getting the negative mark off your credit report.
If you do strike this kind of deal, get the details in writing before making the payment or payments.
Other than coming up with the cash, the most difficult part of this strategy is getting the right person on the phone. You’ll need some persistence.
And, this strategy assumes you could come up with the payment which I know isn’t a given. So if this won’t work for you, move on to the next step.
2. Dispute the Repossession on Your Credit Report
You could also get the negative item removed by disputing the repossession with the three major credit bureaus — Experian, TransUnion, and Equifax.
Data from these three bureaus feed your FICO score which lenders check before giving you a loan.
To dispute negative items such as a repossession, you’ll need to look over the entry closely, searching for any inaccuracies you can find.
Check these details for accuracy:
- All dates
- Payment terms
- Account numbers
- Anything else that’s inaccurate
If you find an inaccuracy, dispute the entry with the credit bureau that’s reporting inaccurate information. The bureau will have 30 days to verify its information is accurate.
If it’s inaccurate, the bureau will need to either correct the data or remove the entry in accordance with the Fair Credit Reporting Act.
Often, all three credit bureaus will have the same inaccuracy since they receive information from your lender.
Send dispute letters to the bureaus, including your account numbers, name, address, and Social Security number, at these addresses:
- TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000
- Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374-0256
- Experian Dispute Department
P.O. Box 4500
Allen, TX 75013
It is possible to remove a repossession using this method, but it’s not a guarantee. If you do find inaccuracies and one of the bureaus doesn’t respond to your letters, get in touch with the Federal Trade Commission.
Have a Professional Remove the Repossession
If you don’t feel like writing letters, calling the lender and finding the right person, or coming up with the cash to settle a repossession, you could hire a professional credit repair company to help.
Credit repair companies won’t do anything you couldn’t do yourself, but they do this kind of work every day and have expertise that goes above and beyond common knowledge.
If it’s possible to remove a repossession, a good credit repair company will get the job done.
I suggest you check out Credit Saint. They’ll take care of you. Check out their website.
You’ll pay a monthly fee for this kind of service, but having the repossession off your credit will pay for itself in lower interest rates and freedom from getting a co-signer every time you need to borrow money.
Why are Repossessions Bad for Your Credit?
Of all the negative marks that can build up on your credit report — from late payments to missed payments to high loan balances — a repossession can have the biggest negative impact.
A repossession means you probably missed three or four car payments in a row and didn’t respond to phone calls and letters from your lender. It means your lender has lost money on your loan.
Plus, for you, repossession isn’t the only negative mark that results from the ordeal. Your credit history will also show the monthly payments you missed leading up to the repossession.
If the lender hired a collection agency, the same debt may appear twice on your credit file, exacerbating the problem even more.
That’s why a repo could drop your FICO credit score by 100 points and possibly more.
How Long Will a Repossession Affect Your Credit?
Negative information stays on your credit report for seven years from the day it appears in your file. As the years pass, the negative impact on your credit score will lessen.
If you make on-time payments on your other credit cards and personal loans, your good payment history will start to compensate for the bad, softening the blow of the repo.
But the repossession will stick around, making any new credit application an adventure. You’ll feel the need to explain the negative item each time your credit gets pulled.
Is Voluntary Repossession Better for Your Credit?
Repossession has the same impact on your credit score even if you opt for a voluntary repossession. Either way, the lender had to reclaim the car and try to recoup its losses from your loan.
But voluntary repossession has a couple other benefits. You can preserve some dignity by taking control of the process, for example.
By making an appointment to return the vehicle, you’d be preventing someone from the bank from showing up at your place of work or at your home to take the car, leaving you stranded.
And, you could avoid a few additional late or missed payments from making their way onto your credit report.
If you see there’s no way to avoid repossession, you may as well surrender the car voluntarily. Usually, though, you can avoid a repo by communicating with the lender.
How to Avoid Repossession
Even if you’ve missed payments and been threatened with a repo, you could still avoid this outcome.
But you have to communicate with your lender before you’ve missed a long string of payments. Lenders don’t want to repossess your vehicle. They almost always lose money when they have to cancel a loan and reclaim the car.
Because of this, a lender will usually work with you to avoid repossession. You could refinance the car for lower payments or maybe even skip a payment, with permission, to help you catch up and start making timely payments again.
The key is to get ahead of the curve. Once the bank’s designee has shown up at your door with plans to drive off in your car, you’re almost out of options.
A Repossession Can be Removed, but It’s Not Easy
If you have a repossession in your credit history and it’s reported accurately and you can’t afford to pay off the bad debt, you’ll have a hard time removing the negative mark from your credit report.
If anyone can help, Credit Saint or Lexington Law — the two professional credit repair companies I mentioned above — can find a way.
But if the credit bureaus report the repo inaccurately, or if you can afford to negotiate a settlement with the original lender, you still have some leverage you can use to remove the derogatory mark. You’ll still need some persistence, but the law is on your side.
Before you start disputing the repo, look over the Fair Credit Reporting Act and the Fair Debt Collections Practices Act — both of which lay out your consumer rights.
The Consumer Financial Protection Bureau also has resources you can use as you make your case to the credit bureaus.
Later, once you have the issue resolved, you’ll once again be able to borrow at competitive interest rates and retain the buying power you need to build a better financial future.