Perhaps the most dreaded outcome of defaulting on auto loan payments is a repossession, during which the lender reclaims the vehicle. You can voluntarily surrender it or watch the bank as it sends somebody to tow it away with no need for a notice or a court order.
Unfortunately, the damage doesn’t stop there because the repossession takes its toll on your credit score, and it’ll be visible on your credit reports for up to 7 years. Even worse, if the bank sells the vehicle and the price isn’t enough to pay off your debt, you’ll still owe the bank money, further reducing your credit score.
Consequently, it’ll be challenging for you to obtain loans in the future and probably more expensive. Nevertheless, you can do something about it. There are multiple methods used to remove repossession from credit reports, as we shall demonstrate.
The Short Answer
We want to shed light on three main methods of removing a repossession from a credit report.
Hiring a credit repair company is the easiest one. Credit repair companies attempt to remove your repossession using their expertise and resources for a fee. Of course, there isn’t a 100% guarantee that the company will indeed remove it.
Secondly, filing a dispute is also a solid option under the right circumstances. If you’ve been wronged and believe this repossession is inaccurate or an error, you should file a dispute to have the repossession removed.
Last but not least, you can go down the route of payment term negotiations with your lender. This is undoubtedly a challenge, but you can try to dissuade your lender from going through with the repossession by negotiating your loan term. The goal is to convince your lender that you can fulfill your payments if the monthly cost was lowered.
How Do I Remove a Repossession from My Credit Report?
Now that we’ve given you a brief idea, let’s get into the details of each of the three ways of removing a repossession from a credit report.
1. Hire a Credit Repair Company
This is a viable option that’ll relieve you of the burden of filling in paperwork because the credit report company does all the heavy lifting on your behalf.
Practically, it doesn’t have the authority to do anything that you can’t do, but it has the experience and resources you lack to back it up. Accordingly, if there’s a chance for you to get a repossession removed, you can count on the fact that a good credit report company will do it.
The downside is the cost, ranging from a monthly fee of $69 to $99. And even then, there’s no guarantee that this will work. But perhaps it’s worth the risk when you consider how this could save you money on interest in future loans and allow you the freedom to take out a loan without a cosigner.
2. File a Dispute To Remove It
Filing a dispute is ideal for individuals whose repossession resulted from an error or incorrect information. It gives you the right to dispute it with the three main credit bureaus (Experian, Equifax, and TransUnion) and remove the repossession from your report.
The reason for that is that these bureaus are the data source feeding your FICO score (your credit score calculated by the Fair Isaac Corporation and checked by lenders before granting you a loan). Chances are, the inaccuracies found in one of the credit bureaus will be found in the other two.
Tip: Before disputing a repossession, review the consumer rights illustrated by the Fair Credit Reporting Act and the Fair Debt Collections Practices Act. Also, the Consumer Financial Protection Bureau provides helpful resources for disputing repossessions.
To dispute the repossession, search the entry closely to find any accuracies in the following details:
- Account numbers
- Payment items
If you do find one, you need to write a dispute letter addressed to the credit bureaus using certified mail. The letter should include your name, address, account numbers, and social security numbers, and you should send it to the following 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
If the lender can’t prove or validate their information or don’t respond within 30 days, they’ll be forced to correct the date or remove the repossession entry altogether. Also, you can consider contacting your state Attorney General or the Federal Trade Commission if you believe your repossession was unjustified.
Tip: Throughout your loan term, if you’ve agreed with your creditor on a different payment date, this might render the original contract invalid, so make sure you have the papers to prove it.
3. Negotiate the Payment Terms
It may be a long shot, but it’s worth trying to negotiate the loan terms so that you can carry on paying your installments. You can do that with your lender, whether that’s a bank, an online lender, or an in-house finance company. Furthermore, you might need to get them to reduce your monthly installments and, of course, give you your car back.
Nothing can force your lender to agree; nevertheless, defaults aren’t profitable to any involved parties. So, it may be in their best interest to negotiate because you owe them money, and they’d very much like it back. The tricky part here is to reach the right person, meaning you need to contact someone capable of making policy decisions.
Afterward, you may offer your lender a deal where you pay them back, and they remove the repossession item off your credit report and give you back your car. Of course, negotiating with your lender would be fruitless if they’ve already sold your vehicle, in which case your remaining option is credit repair.
However, if you’re successful in doing that, they should then contact the credit bureaus to remove the repossession from your report. Finally, you must request guarantees in writing, allowing you to dispute this entry later on if you need to.
How Does a Repossession Affect My Credit Score?
If you’re starting to think that removing a repossession from your report is too much work and that you’d better wait it out, think again because it’ll be on your credit report for the entire time (7 years) and damage your credit score.
To start with, the main factor when it comes to your credit score is your ability to make payments on time. If your vehicle has been repossessed, that means you’ve had quite the defaulted payments to cause it. Therefore, your missed payments have already reduced your credit score significantly.
This situation further deteriorates with the repossession order because it entails that you’ve not only missed about three or four consecutive installments but also didn’t respond to your lender’s letters and phone calls. And to top it off, the lender might take you to court, demanding a deficiency judgment for the outstanding balance.
This court ruling confirms that selling your property (car) wasn’t enough to settle your outstanding balance, indicating that you have to pay further funds. The resulting collection will appear on your report, causing the same debt to appear twice on it and decreasing your credit score even more.
With a repossession order, your FICO credit score might drop by 100 points or even more. And although providing exact numbers to demonstrate how detrimental a repossession is to your report may prove difficult, that’s only because other factors play into your score. This makes it impossible to pinpoint the exact impact of each.
Nevertheless, we believe the repercussions we’ve detailed do give you a good idea and are enough to deter you from making light of the situation.
What Happens if I Can’t Remove the Repossession off My Credit Report?
Since we’ve gone through your options for removing a repossession, we think it’s only fair to explore a possible outcome: your inability to remove it. In that case, you’ll have to wait seven years for it to disappear. The silver lining is that your repossession won’t impact your credit score for the whole period.
Even though an old item on your report will affect your credit score, recent items hold more weight, rendering old ones less relevant. To elaborate, payment history comprises 35% of your score. In contrast, credit utilization, credit history length, total debt, number of new credit accounts, and the diversity of your credit mix are more dominant factors.
Fortunately, this means you can build your credit score once again by making sure that your recent activity is up to par, thus increasing your credit score.
Can You Get a Car Loan With Repossession?
It’s improbable that you’d be able to secure a car loan with a repossession on your credit report because it hurts your reliability as a borrower.
Major banks tend to reject loan applications if the applicant has had a recent repossession. You’d need at least two years of clean payment history to be eligible.
As for private lenders, some offer a second-chance financing service. They have flexible credit score requirements, but they’ll probably charge you a very high interest rate with additional fees so that it’s worth the risk.
Even with these flexible criteria, they might require your repossession to be at least a few months old. Also, consider the income requirements, which will probably be no less than $1000 (if not more).
If you want our opinion, this isn’t such a good idea since your credit is already in bad shape. You wouldn’t want to place yourself in a much pressing financial crisis. Instead, a more responsible route would be handling the repossession at hand before proceeding with a new car loan.
Ultimately, removing a repossession from your credit report is no easy task, but it’s achievable. If you’re willing to invest a little, consider hiring a credit repair company because they’ll waste no opportunity to remove it. If there are any errors or inaccuracies in your credit report, you can file a dispute to remove the repossession.
And lastly, negotiating with your lender to adjust the loan term is the appropriate choice if they are yet to sell your car. Whatever you do, don’t merely choose to wait it out because repossessions are very damaging to your finances.