Budgeting Credit Debt

How Long Does a Repo Stay On Your Credit?

When your car is taken away, there may be a list of worries on your mind. How will you get your car back? Or, how long does a repo stay on your credit history? Keep reading to find out more about the repo process and its impact on your credit.

Car Repo Can Stay On Your Credit for Seven Years

Negative marks, like vehicle repossession, can affect your credit report for up to seven years. Since car repossessions stay on your credit for so long, you want to do everything you can to avoid this kind of negative mark. 

Kinds of Car Repossession

There are two main types of vehicle repossession: voluntary surrender and involuntary surrender. Voluntary surrender, also known as a voluntary repossession, occurs when delinquent borrowers give up their vehicle to their auto loan lender. Borrowers may voluntarily surrender their vehicle if they know they are unable to repay their auto loans and have no other way of finding funding. 

Involuntary repossession occurs when a lender forcibly takes a delinquent borrower’s vehicle, usually after that borrower shows no reasonable efforts or attempts to make good on their missed payments. 

The Basics of Credit Scores and Credit Reports 

The purpose of credit scores and credit reports is to give lenders and financial institutions an idea of how financially responsible and trustworthy a consumer is. Before 1970, the process of compiling one’s credit history went wildly unchecked. Not all consumers had access to their credit reports, and credit scoring tactics were inconsistent. But, after the Fair Credit Reporting Act (FCRA) was enacted in 1970, credit reporting became much more regulated. Under this act, consumers are entitled to access their credit reports, containing all the information lenders review when determining loan approval. This act also prohibits using race, sex, or social status as a means of judging creditworthiness. 

What Are Credit Bureaus?

Credit bureaus are a type of financial institution that keeps track of consumers’ financial habits and behaviors and compiles the collected data into personalized credit reports. Each consumer’s credit profile contains information regarding their: 

  • Payment history. 
  • Length of credit history. 
  • Mix of financial accounts. 
  • Total amount of debts owed. 
  • Recent hard credit inquiries. 

The major credit bureaus are Experian, TransUnion, and Equifax. 

How Does Car Repossession Affect Your Credit Report?

Unfortunately, car repossession can have a detrimental impact on your credit report. In order for repossession to occur, you must have multiple missed payments on your account. Since payment history makes up 35% of your credit score, account delinquency can cause your score to drop quite a bit. 

Missing one payment on your loan isn’t the end of the world; you may see your credit score go down a few points, but chances are your score will bounce back in a month or so. However, don’t let making late payments become a habit!

If you let your car loan go unpaid for too long, your lender may send your account to a collection agency. At that point, you can start paying back the loan, or the account will officially be declared as a default. Loan default will certainly cause a drop in your credit score and may stay on your report for seven to 10 years. During that time, you may have difficulty finding approval on loans or lines of credit. 

Effects of Having Bad Credit

Having a poor credit score can hold you back quite a bit when it comes to the finance industry. Your credit score can be the make-or-break factor on finding approval for loans, low-interest rates, and high loan amounts. Borrowers with low credit scores may find they are limited in what kind of financial products they are eligible for. For example, people with bad credit scores may not be able to get approved for some mortgage loans, which can be a major roadblock if you are looking to purchase a home. 

How Much Does Car Repossession Cost?

Car repossession can get expensive in a few different ways. First, in order to get your car back, you will have to become current on your delinquent car loan. This may involve making payments from multiple months and paying late or insufficient fund fees. 

Furthermore, you may possibly have to go to an impound lot to pick up your vehicle. Here, you may be required to pay other kinds of repossession fees before you can gain access to your car again. 

Ways To Improve Your Credit While Recovering From Car Repossession 

While car repossession can cause your credit score to take a hit, it’s not impossible to recover from. It may not happen overnight, but there are things you can start doing today to help boost your credit after dealing with a car repo. 

Focus On Rebuilding Your Payment History 

The most impactful thing you can do to improve a bad credit score is to focus on making on-time payments. You can make this process easy by signing up for autopay on any bills or expenses you are responsible for. 

If you don’t want to sign up for autopay, set aside time each week to review your finances and manually pay your financial obligations.  

Check Your Credit Report Often 

Stay familiar with your credit reports and check them often, perhaps about once every month or so. Under the FCRA, consumers are entitled to one free credit report yearly from each of the major credit bureaus, but you can also get an unofficial report any time you’d like. Many banks and credit card companies allow their customers to view their free credit score and report at no cost. 

Checking your credit report often lets you see how your financial habits can affect your credit score in real-time. This familiarity also allows you to make adjustments if you see some of your behaviors are affecting your credit in a negative way. For example, if you apply for many loans within a short period of time, you will see your credit start to drop. If you see your score drop too much, that can serve as a warning to limit your applications for lines of credit for a while. 

Staying familiar with your credit report may also help you identify credit reporting errors quickly, saving your credit score from unnecessary damage. 

Take Advantage of Credit Report Reward Programs

If your financial situation is complicated, you may want to consider working with a credit repair company. There are many credit repair companies that offer discounted or even free services for people who need help coming up with a credit recovery plan. 

There are also extra credit reward programs offered by some of the major credit bureaus. For example, Experian has a program called Experian Boost that allows consumers to put smaller bills, like subscription accounts, on their credit reports. That way, you can help raise your credit score just by paying your Netflix subscription on time! 

Stay Away From Predatory Loans

Some types of loans, like instant online payday loans, are advertised as being a quick and easy way to get money, but this is not usually the case. Beware of predatory lending practices that may hurt your credit history and prevent you from improving your credit. 

Tips for Avoiding Car Repossession 

For the sake of your credit report and credit history, try to avoid vehicle repossession at all costs. Make your payments on time or consider looking for a debt consolidation loan, so you never have to worry about losing your vehicle! 

Sign Up for Autopay on Your Car Loan 

A surefire way to avoid your car repossession is to adhere to the terms of your auto loan contract, which involves staying on time and consistent with your monthly payments. You can sign up for autopay to take the stress out of remembering to make your car payments each month. With autopay, your minimum payment is deducted directly from your checking account each month. As long as you have sufficient funds in your bank account, you’ll never have to worry about missing a payment ever!

Refinance To Get a Better Deal 

If you currently have a car loan with extremely high-interest rates or an unreasonable payback schedule, you may want to consider refinancing with a new loan. You may be wondering, does refinancing a car hurt your credit? On the contrary, refinancing debt can actually help improve your credit score! 

Consolidating debt can also help lower the amount of payments you make each month, which can end up saving you money on interest rates in the long run. 

The Bottom Line: Car Repossession and Your Credit Report 

The car repossession process can be time-consuming, financially draining, and highly stressful. Save yourself a world of hassle by not breaking your car lease or auto loan contract. If you ever feel like you are in a place where you are unable to make payments, contact your lender immediately. They may have a solution that could help you avoid a missed payment!