How Bad Is a Vehicle Repo on Your Credit?

A vehicle repossession occurs when a lender reclaims a vehicle used as collateral for a loan because the borrower failed to make payments. This action significantly impacts a borrower’s financial standing, affecting credit reports and scores. Understanding these effects is important for consumers to grasp the long-term consequences and begin financial recovery.

How Repossession is Recorded on Credit Reports

When a vehicle is repossessed, the lender reports this event to the major credit bureaus, including Equifax, Experian, and TransUnion. This entry appears as a derogatory mark on a consumer’s credit report, signaling a failure to repay a debt. The credit report will show specific details such as the account status, often listed as “charged off” or “repossession,” the date of the repossession, the original loan amount, and any remaining balance owed.

A repossession remains on a credit report for seven years from the date of the original delinquency. This period begins from the first missed payment, not the date the vehicle was physically taken. Even if the account is settled, the derogatory mark will persist on the credit report for the full seven-year duration.

Credit Score Implications

A vehicle repossession severely impacts credit scores. Credit scoring models, such as FICO Score and VantageScore, heavily weigh payment history, making repossession a significant negative event. This can lead to a substantial drop in a credit score, potentially decreasing it by 100 points or more, depending on the individual’s credit profile before the repossession.

The extent of the credit score decline is influenced by the consumer’s credit score prior to the repossession and their overall credit history. A higher initial score typically experiences a more pronounced drop, while a repossession on an otherwise clean credit report will have a greater impact compared to a report already containing other negative marks. Credit scoring models also consider the amounts owed and the age of the account, all of which are negatively affected by a repossession.

Understanding Related Financial Obligations

A significant financial obligation after a vehicle repossession is a “deficiency balance.” This occurs when the proceeds from the sale of the repossessed vehicle are not enough to cover the outstanding loan balance, along with any associated repossession and sale costs. For instance, if a borrower owes $15,000 on a loan and the repossessed vehicle sells for $6,000, the deficiency balance would be $9,000, plus any additional fees incurred by the lender.

The lender may add various fees, such as towing, storage, administrative, and legal costs, to the deficiency balance. If this deficiency balance is not paid, the account can be sent to collections, which can result in additional negative credit marks, potentially leading to a further decline in credit scores and even legal action like wage garnishment or bank account levies.

Accessing and Reviewing Your Credit Information

After a vehicle repossession, it is important to access and review your credit reports. Consumers are entitled to a free copy of their credit report weekly from each of the three major credit bureaus—Equifax, Experian, and TransUnion—through AnnualCreditReport.com. This centralized website is the only authorized source for these free reports.

When reviewing these reports, examine specific items related to the repossession. This includes verifying the accuracy of the repossession entry, checking for any associated deficiency balance accounts, and identifying any collection accounts opened as a result of the unpaid deficiency. Confirming the accuracy of account numbers, balances, dates, and payment terms is an important step in managing credit information.

Correcting Errors on Your Credit Report

If you identify inaccurate information related to a repossession on your credit reports, you have the right to dispute these errors. The dispute process involves contacting both the credit bureau and the original furnisher of that information, which is usually the lender. Send disputes in writing, providing clear explanations of what you believe is incorrect and including copies of any supporting documentation.

Credit bureaus are required to investigate disputes within 30 days. If the investigation confirms the information is inaccurate, incomplete, or cannot be verified, the credit bureau must correct or remove the entry. The furnisher of the data is also obligated to investigate and correct or delete inaccurate information they provided.