How to Remove a Car Repossession From Your Credit Report

A car repossession occurs when a lender takes back a vehicle due to missed loan payments. This action impacts an individual’s financial standing, as it is recorded as a negative mark on their credit report. A repossession remains on a credit report for up to seven years from the date of the first missed payment that led to the repossession, not the date of the repossession itself. Such an entry can lower credit scores, making it more challenging to secure future loans, credit cards, or even housing. The presence of a repossession signals to potential creditors a history of financial difficulty, which can lead to higher interest rates or outright denial of credit.

Reviewing Your Credit Report

The initial step in addressing a car repossession on your credit report involves reviewing your credit history. You can obtain a free credit report once every 12 months from each of the three major nationwide credit reporting companies: Experian, Equifax, and TransUnion, through AnnualCreditReport.com. Federal law also allows for free weekly access to these reports permanently. Examine each report for details related to the repossession.

Look for the exact date of the repossession, the name of the original creditor, the account number, and the amount that was owed at the time of repossession. Verify any associated negative marks, such as a deficiency balance sold to a collection agency, appearing as a separate entry. Scrutinize these details to identify any inaccuracies, such as incorrect dates, amounts, or if the repossession was reported in error due to a prior agreement.

Disputing Inaccuracies

If you identify any discrepancies or inaccuracies while reviewing your credit reports, the next step is to dispute them with the credit bureaus. Disputes can be filed online, by mail, or over the phone. When submitting a dispute, include copies of supporting documentation, such as proof of payment, original loan agreements, or communication with the lender, to substantiate your claim.

Under the Fair Credit Reporting Act (FCRA), credit bureaus must investigate disputes within 30 to 45 days. During this period, the credit bureau contacts the information provider, typically the lender, to verify the accuracy of the disputed entry. If the information is found to be inaccurate, incomplete, or unverifiable, the credit bureau must correct or remove the entry from your report. However, if the information is verified as accurate, it will remain on your credit report, and disputing a correct entry will not result in its removal.

Engaging with the Lender

Even if a repossession entry is accurate, consider engaging directly with the original lender or servicer. This approach is pursued to request removal of the accurate negative entry as a goodwill gesture. A “goodwill letter” can be drafted, acknowledging the past financial difficulty and explaining any hardship that led to the repossession, such as job loss or illness. The letter should also demonstrate improved financial responsibility since the incident, highlighting consistent on-time payments on other accounts.

When writing a goodwill letter, politely and professionally request the removal of the negative entry, emphasizing your improved financial stability and long-term relationship with the lender. While this method is not guaranteed to succeed, especially for severe negative items like repossessions, some lenders may consider such requests based on individual circumstances and the customer’s payment history since the event. The goal is to encourage the lender to make an exception, recognizing your efforts to manage your finances responsibly.

Rebuilding Your Credit

Regardless of whether a repossession entry is removed, taking steps to rebuild your credit is important for improving your financial future. The most significant factor in credit scoring is payment history, accounting for approximately 35% of a FICO score. Consistently making all future payments on time for all your accounts, including credit cards, loans, and utility bills, will steadily build a positive payment record.

Managing credit utilization is another important aspect, referring to the amount of revolving credit used compared to total available credit. Keeping your credit utilization low, ideally below 30% of your total credit limit, indicates responsible credit management and can positively impact your credit score. Additionally, consider adding new types of credit responsibly, such as a secured credit card, which requires a cash deposit as collateral and reports payment activity to credit bureaus, thereby helping to build credit history. Over time, consistent positive financial behavior can mitigate the long-term impact of a repossession and help restore credit health.