Having a piece of your property repossessed can be crippling. What many victims of repossession don’t immediately realize is that it leaves a derogatory mark on your credit report. This can lead to problems acquiring a loan, getting approved for a mortgage, or even getting a job. You obviously want to limit this as much as possible, so how do you remove repossession from your credit report?
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What Is a Repossession?
Repossessions occur when the true owner of a piece of property reclaims it from the borrower. This can occur with any borrowed item that still has value — even a home. A repossession generally occurs when a borrower has failed to meet the terms of the loan. There are two types of repossessions:
- Voluntary: A voluntary repossession is where you reach out to your lender and surrender the car to them willingly because you can no longer make the payments on the account;
- Involuntary: An involuntary repossession is where you miss your payments, default on the loan, and the lender legally seizes the car without notice.
Even though the two repossessions are classified as two separate terms, they can both still affect your credit.
How Does a Repossession Affect Credit?
If you have a repossession on your credit report, you’ll likely see a decrease in your credit score. There are a few different ways that repossession can affect your credit score — these include:
- Late payments: The primary cause for repossession is multiple late payments. Late payments are reported to the credit bureaus and this hurts your credit score. Note that late payments stay on your credit report for up to seven years;
- Getting sent to collections: If you have a lot of missed payments or you still owe a balance after the item is repossessed and sold, it is common to get sent to collections. Collections agencies report to the credit bureaus and this will negatively impact your credit score;
- The repossession itself: When an item is repossessed, this information is passed along to the credit bureaus and will result in a negative mark on your credit report.
Additionally, if you have a co-signer on your loan, their credit score could also be affected.
There is a common misconception that if you opt for a voluntary repossession, it affects your credit less — this is not the case. Although there may be some benefits to a voluntary repossession, your credit score is not one of them.
How Long Does a Repossession Stay On Your Credit Report?
Unless you take action to remove it, a repossession will stay on your credit report for up to seven years. While the negative impact will decrease over time, it can still hold you back from a good credit score.
Steps to Remove a Repossession From Your Credit Report
If you don’t feel like waiting seven years, then your only option is to attempt to remove the repossession from your credit report entirely. Be prepared for an uphill battle. Credit repair can get complicated quickly.
1. Negotiate With Your Lender
The first thing you need to do is see if you can reach a new agreement with your lender about any remaining balance. You don’t want any residual debt to drag you even further down.
If you can accomplish that, see whether you can renegotiate the original loan as well. Your lender is probably selling the repossessed property at a loss, so if you can pay the original loan, that is better for them in the long term. Identify why you couldn’t pay your original loan, and make every reasonable attempt to show that you can pay these new terms now.
2. File a Dispute
If you want to remove the repossession from your credit report, you’ll have to dispute it with the credit bureaus. You’ll submit your complaint and request to have it removed from your credit report, along with your justification.
However, a simple “it is dragging down my credit” isn’t enough. Unfortunately, the process for getting anything removed from your credit report is far from simple.
3. Consider Loan Rehabilitation
A loan rehabilitation program will probably be what your lender suggests if they are open to reinstating the loan. In loan rehabilitation, you and your lender come to an agreement about your payments over a relatively brief period of time (usually less than a year) in order to get your account current.
4. Seek Legal Help
You may want to consider hiring an attorney to advocate on your behalf. An attorney will have a better understanding of the laws surrounding repossession, loans, and insight into whether or not you have grounds to sue. Very few things are as effective as having an expert opinion on your side.
How to Dispute a Repossession on Your Credit Report
Credit report disputes are a fairly simple process, but it is important to be aware of the different steps for doing so — this involves:
- Getting a copy of your credit report;
- Looking for any errors on your credit report;
- Gathering supporting evidence;
- Reporting the errors to the credit bureau — generally in the form of a repossession dispute letter.
If the lender is able to prove that the information on your report is accurate, the account will not be removed. If the lender is unable to produce evidence against your dispute, the credit bureau will remove the account from your credit report. The credit bureaus are required to investigate the dispute within 30 days of receiving it.
How to Prevent a Repossession
Many people go through financial struggles, but it is important to stay on top of your payments in order to avoid repossession. If you are unable to make your payment, it is critical to communicate with your lender to see if you can make any changes to your agreed-upon terms.
More often than not, your lender will be willing to work with you if you are upfront and honest with them prior to the due date. In some cases, you may be able to work out an alternative payment date, or you may want to consider refinancing for a lower monthly payment if you are unable to make the payments going forward.
Get Professional Help to Rebuild Your Credit
If you were unable to remove the repossession, it is likely your credit score has been affected. You will need to work towards rebuilding your credit. While this is a process that you can do yourself, credit repair experts and lawyers are often better equipped to handle this situation.
There are three main credit bureaus, and you’ll have to navigate the bureaucracy with all of them. This can take a lot of time and effort. Chances are that if your credit is falling because of repossession, you already have a lot to deal with, and true credit repair takes months of concentrated effort.
Additionally, professionals know the industry; they’ll be better off negotiating and navigating the system. If you’re serious about improving your credit, you might be better off looking into credit repair companies.
A repossession can turn your life upside down, but there’s no reason it has to stay that way. You can right the situation and move on with your life. You’ll have to deal with the short- and long-term consequences, and you might need some professional help, but you’ll be able to put this behind you with intentional efforts.
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