Having a vehicle repossessed is a negative experience, both personally and in terms of your credit score. If your dealer or creditor has repossessed your car because you can’t repay an auto loan, the most crucial thing is to keep calm. Then, you can figure out how to mitigate the damage.
Here, we review the different options for how to remove repossessions from a credit report. By doing so, you may be able to correct the damage to your credit score.
What Does Repossession Mean?
In broad terms, repossession means that a lender takes the borrower’s property when the borrower can’t repay a debt.
When you take out an auto loan, the creditor reports this transaction to the credit bureau. These bureaus are the companies that determine your score and track your credit history. Some sketchy loans may not affect your score because the credit bureau may not know about the transactions. However, you want to avoid these situations.
Repossession means that when you can’t repay an auto loan from a creditor, the company will take your vehicle to settle the debt. The agency that granted the loan will be the one to take your car. This entity could be a bank or an online broker. Some dealerships also have in-house finance departments, in which case the dealership will reclaim the vehicle.
How Does a Repossession Affect Your Credit Score?
The damage to your credit score by a repossession is hard to calculate, but it’s always substantial. Without successful credit repair for repossessions, it will stay on your record for seven years.
During this period, without credit repair, you may face the following consequences:
- Significantly higher interest rates on future auto loans
- Higher additional fees
- Outright refusal of auto loans
Credit scores are incredibly complicated, but the essential fact is that they indicate what risk you pose to a creditor. If you are high-risk, you will have to pay more interest to cover that risk. You also may not qualify for as much credit or get approval for certain types of loans.
The scoring system’s purpose is to prevent people from taking advantage of the system. However, it can penalize individuals who can’t repay auto loans for innocent reasons. In these cases, it’s worth knowing the best methods for how to remove repossessions from a credit report.
Who Calculates My Score?
Many people believe that their credit score is in the hands of only one company, but the reality is a lot more complicated. Each bureau has its formula for a credit score, and not all information gets reported to all bureaus. However, enough information will get reported to all three bureaus that you need to care what each of them is saying about you.
You want to know your report and score because any future lender will want all available information on you before offering you credit. Suppose your credit score is good with TransUnion and Equifax but poor with Experian. In this scenario, you can still expect worse terms for a future auto loan.
Why Is a Good or Excellent Credit Score Important?
As mentioned above, a low score may lead to higher interest rates and additional fees for future auto loans. If your creditor has reported a repossession to the credit bureaus, you can bet this will be the case.
The consequences don’t stop at future auto loans, though. Your credit score can affect whether you can get a mortgage in the future. For this reason, credit repair for repossessions is such an essential step for safeguarding your future.
How to Remove Repossessions from Credit Report
A repossession has consequences for your credit report. However, there are ways to get it removed if you feel that it shouldn’t impact your credit score.
There are three paths that you can take for how to remove repossessions from credit reports. Your best approach is to try out these methods in the following order:
- Speak to the lender to arrange better terms.
- Dispute the issue with the bureaus.
- Use the assistance of a credit repair company.
None of these options are easy, except perhaps option three, if you have plenty of disposable income. However, most people who need credit repair for repossessions aren’t as lucky as that.
Speak to the Lender
As mentioned earlier, your credit report calculates the risk you pose to creditors. One or more of the three bureaus will determine this risk by looking at factors on your credit report factors. Also, your lender will consider this a factor on a personal level.
Being level-headed is critical here. If you’ve had your vehicle repossessed because of unforeseen circumstances, you may be able to persuade the lender that you can fulfill the payments from hereon. You may also be able to negotiate a lower regular payment over a more extended period. However, this option will probably involve a higher overall rate of interest.
Even if this ends up costing a bit more in the long run, it’s better than having the repossession on your credit report. Persuading your creditor that you are not a risk to them is the best credit repair method for repossessions. It can potentially circumvent the problem entirely.
Dispute the Issue
This option is suitable if you feel that your creditor has acted in error. Suppose an inaccurate missed payment shows up on your report, and your creditor refuses to correct it for you. You can apply directly to the bureaus to enact credit repair for repossessions.
If your lender has acted in error, disputing the issue is essential. The bureaus have a legal obligation to contact the lender in all disputes raised by consumers. If the lender doesn’t respond or provide reasonable evidence within 30 days, you can have the case corrected or deleted from your record.
Remember that all three bureaus may have received information about the repossession. This possibility is why disputing can be a stressful and challenging process. Even if your creditor has agreed to better terms, they may not have gone to the trouble of making all the bureaus aware of the changed situation. You have to do the legwork yourself.
You can find our guidance on how to dispute issues with each bureau below:
Contact a Credit Repair Company
As with almost every industry, you can pay professionals to settle the dispute for you. The good news is that you save yourself a lot of hassle, and there are some good credit repair agencies that can help.
The bad news is that it does cost money, often a few hundred dollars. However, this amount is small compared to the problems that a bad credit score can cause you.
Why Should You Try to Settle Things Yourself?
There are a few good reasons to try options 1 and 2 before hiring an expert in credit repair for repossessions.
- Confidence. For most of us, the world of finance is a harsh, alien landscape. It can easily seem like your fate is up to forces that you can’t influence or understand. But this assumption is false. Armed with the proper information, negotiating can lead to successful credit repair. It also can enable a far better understanding of how to manage finances in the future.
- Relations with Lenders. Especially if your auto loan comes from an in-house finance company, your relationship with a lender can be crucial. Suppose you like a specific dealership and hope to do more business with them. It’s helpful for both of you to know that you’re both doing your best to meet your commitments. Lenders don’t like silence or angry voicemails. Try to maintain a good relationship, and your chances of credit repair for repossessions are much higher.
- Cost. The most obvious one is the cost. Hiring credit repair experts costs money, and many people who can’t repay auto loans don’t have much disposable income. That said, a good credit repair company can do wonders for your peace of mind. A good credit score is so important.
What to Do If Repossession Is Unavoidable
If you cannot make the vehicle payments, repossession may seem unavoidable. In such instances, there are a few items to know:
Voluntary Is Better than Involuntary Repossession
If you know in advance that you can’t make the required payments on your auto loan, it’s better to come clean than wait. You can return the vehicle and apologize. In such scenarios, the lender is far more likely to listen to you if you ask for alternative terms. Repossession is often the last resort, so don’t make the lender feel you’ve forced their hand.
An Auto Loan Should Not Involve Loan Sharks
If a creditor comes to collect your vehicle, they cannot intimidate or threaten you in any way. You should note any such behavior and report it to the bureaus and the authorities, as it is a breach of the peace.
The companies that manage your credit score love detailed records. If you’ve had your vehicle repossessed, this is a ‘note’ on which they base their judgment. Keep notes of everything related to your case and make sure everyone is aware of what has happened. It makes the process of credit repair for repossession so much easier — for you and them.
A repossession can seem devastating, but there is hope. When you take steps and figure out how to remove repossessions from a credit report, you’re already that much closer to improving your record and score.