In 2015, banks reposessed 1.6 Million cars in the United States. A
repossession devastates consumers personally and financially for years to come.
Below we will teach you how repossession affects your credit and how to remove repossession from your credit history.
How a repossession affects your credit
People with a repossession on their credit report struggle to get financing. Those who get loans often pay interest rates that are three or four times the rates for prime borrowers. Experts estimate that a repossession by itself will initially cause at least a 100 point drop in your FICO score.
What’s worse is a repossession is not a single negative mark on your credit history.
The repossession process starts with a late payment. After 10-14 days, your lender will start to call you. After 30 days of nonpayment, you’ll see negative information on your credit report. Transunion indicates this as a 02 code, meaning that you’re 30-59 days delinquent.
Miss a second payment, and you’ll see a mark 03 (60-89 days delinquent). This makes you a prime candidate for repossession. Your bank will likely increase the volumes of calls.
When the bank repossess your vehicle, a code 8 will appear on your credit report. A voluntary repossession is a code 8A. Both damage your credit, and you need to avoid or remove these items.
But the repossession isn’t the end of the road. If the bank takes your car, you might owe a balance on the loan even after the bank sells it. If you can’t pay this in full, a collection item will enter your credit report. At this point, collections agents may start to contact you.
Finally, if the bank sues you for the collections, you will see a judgement on your credit report.
Together these items can sink your credit score, and bar you from borrowing for several years.
Each of these items will stay on your credit report for seven years from the time of default. Over the course of seven years, these items have less and less of a negative effect on your credit score. If you pay your current accounts on time, you may see your credit score recover in just three to four years. In some cases, you may want to wait out the negative effects rather than fighting them.
But you can fight to remove the negative items if they hinder your ability to move forward in your financial life. Here’s what you can do to remove repossession from your credit report and gain control of your financial life.
Work to Avoid Repossession
The best battle is the one you don’t have to fight. Rather than fighting to remove a repossession from your credit report, avoid repossession altogether.
If you think you will fall behind on your payments, communicate with your lender right away.
Prepare to negotiate before you contact them. Have a clear idea of the type of outcome you want. Aim to come away from the negotiations with no negative marks on your credit and owing as little as possible.
Your lender may ask you to consider a voluntary surrender. Do not accept a voluntary surrender unless your creditor agrees not to report a default to the credit bureaus.
If you accept a voluntary surrender, you’ll lose any equity you have in a vehicle. However, many people will come out ahead even if they surrender equity. It is difficult to sell a car in a hurry.
If your vehicle is worth less than you owe, a voluntary surrender has even more traps. Your bank has the right to sue you for the difference between what they get for your car and what you owe.
When you’re negotiating aim for getting the bank to waive that right. Some banks will waive the difference after enough negotiating. Other banks will allow you to finance the difference with a personal loan. In a worst case situation, your lender will keep the right to sue you for the difference.
A voluntary surrender leaves you without a vehicle. Consider using a borrowed vehicle, public transit or a bicycle for a few months while you get your finances back in order. If you’ve kept your credit intact, you’ll be able to borrow for a vehicle as soon as you have sufficient cash flow.
If you need a vehicle, try to negotiate for a loan refinance. You can work with your lender to stretch the loan out over a longer time. This leaves you with a vehicle and a lower monthly payment.
Another option that allows you to keep your vehicle is a loan deferment. Some banks will allow you to skip one or two payments and tack them onto the end of the loan. Usually this option requires you to pay fees and extra interest. However, the option is much better than destroying your credit. You could also use a deferment to sell the vehicle at top dollar if you have equity in it.
No matter what option you choose, be careful with your negotiations. Get all agreements in writing. If you’re proactive, you should be able to get out of a loan without a negative mark on your credit.
Reinstate a loan
If your car was repossessed in the last few weeks, you may be able to get your car back through a loan rehabilitation process called loan reinstatements.
Loan reinstatements require you to pay a certain set fee to reinstate your loan and get your vehicle back. Ask your lender for a reinstatement quote, and check for a reinstatement deadline. This quote will be the starting point for your negotiations.
If you move forward with a loan reinstatement, beware that reinstating the loan does not remove a repossession from your credit report.
To remove the repossession, you need to negotiate with the lender to remove it. This can be part of the terms of a new loan. Depending on your financial situation, you may wish to hire a lawyer to negotiate this on your behalf.
Reinstating a loan will be the most successful if you lost the vehicle due to a temporary loss of income. You do not want to reinstate a loan if the payments cannot handle the payments.
Disputing a repossession
Disputing a repossession may be the most effective way to remove a repossession. As a consumer you have the right to an accurate credit history.
You cannot legally dispute accurate negative information on your credit report, and you cannot hire someone else to do it for you. Credit jamming (frivolously contesting all negative information on your report) will briefly remove negative information from your credit report, but it won’t be permanent.
However, you can use a dispute to remove a repossession. Many banks enter inaccurate or incomplete information when they repossess your vehicle. You can dispute this information, and the credit bureaus will remove it if the bank or data provider doesn’t prove its accuracy.
Anybody can dispute a repossession on their own, but experts at Lexington Law know the best tactics for dealing with the credit bureaus and your creditors. Having an expert on your side can be the most efficient way to remove a repossession from your credit history.
If you want to dispute a repossession on your own, you’ll need to do more work. First, pull your credit report from all three bureaus using AnnualCreditReport.com. Identify errors and incomplete information.
Then using the dispute letter provided by the Federal Trade Commission, request that the credit bureaus remove the inaccurate information. As long as you have evidence of an error, the credit bureaus will correct the error or remove the repossession from your credit report.
A repossession doesn’t have to ruin you
A repossession hurts your credit score, and it may limit your options for a time. But a repossession doesn’t have to ruin you.
Before you work on removing a repossession from your credit history, focus on building positive credit. This means paying all your current accounts on time. If you don’t have current accounts, consider a credit builder account from Self Lender, or a secured credit card.
After you take care of your current accounts, work to remove the repossession, or let the negative marks run their course. Either way, within a few years, your credit will be restored again.