How Long Is a Repossession on Your Credit?
Learn about the presence of a repossession on your credit report, its implications for your score, and how long it influences your financial standing.
A repossession occurs when a lender takes back an asset, such as a vehicle, that was used as collateral for a loan because the borrower failed to make payments as agreed. Understanding the implications of a repossession on one’s credit is important, as it significantly impacts financial standing and future borrowing opportunities. This article aims to clarify how repossessions are reflected on credit reports and their influence on credit scores.
Repossession’s Reporting Period on Credit Reports
A repossession generally remains on a credit report for up to seven years. This reporting period typically begins from the date of the original delinquency that led to the repossession, rather than the actual date the asset was seized. This timeframe is consistent with most other negative items reported under the Fair Credit Reporting Act (FCRA), a federal law that regulates how long adverse information can appear on consumer credit reports.
The seven-year duration applies to both involuntary repossessions, where the lender takes the asset without the borrower’s immediate consent, and voluntary repossessions, where the borrower willingly surrenders the property. While a voluntary surrender might slightly reduce some associated fees, its impact on the credit report’s duration is similar to an involuntary one.
Details of Repossession Entries on Credit Reports
When a repossession is reported, specific information related to the event appears on the credit report. This typically includes the creditor’s name, the original loan amount, and the account number. The entry will also indicate the date of the repossession and the account’s status, which might be listed as “charged off,” “repossession,” or “voluntary surrender.”
A significant detail often included is the “deficiency balance.” This is the remaining amount owed on the loan if the sale of the repossessed asset does not cover the full outstanding debt, along with any associated towing or storage fees. If this deficiency balance is not paid, it may be sent to collections, creating another negative entry on the credit report.
Influence of Repossession on Credit Scores
A repossession is considered a severe derogatory mark, leading to a significant negative impact on credit scores. This impact is often compounded by the late payments that typically precede the repossession, each of which also negatively affects the score. Payment history is a primary factor in credit scoring models.
The initial drop in a credit score due to a repossession can be substantial, often 100 points or more. While the negative entry remains on the credit report for seven years, its impact on the credit score generally lessens over time. Different credit scoring models, such as FICO and VantageScore, weigh negative events like repossessions, but the exact algorithms are complex and vary.
Understanding and Addressing Credit Report Information
Consumers can obtain free copies of their credit reports from the three major nationwide credit bureaus: Equifax, Experian, and TransUnion. These reports can be accessed weekly through AnnualCreditReport.com, which is the only authorized website for free credit reports mandated by federal law. Regularly reviewing these reports is important to ensure the accuracy of all listed information.
If inaccuracies are found regarding a repossession entry, such as incorrect dates, amounts, or if the repossession was reported in error, consumers have the right to dispute this information. The dispute process involves contacting the credit bureau and providing supporting documentation that proves the inaccuracy. Credit bureaus generally have 30 to 45 days to investigate the dispute and correct or remove the information if it is found to be inaccurate or unverifiable.