A repossession can have a huge negative impact on your credit, so you need to take action quickly as soon as you see one on your credit report. In this article we are going to show you what your options are and what you can do, but first let’s start by explaining what a repossession is.
- 1 What exactly is repossession?
- 2 What happens during a repossession?
- 3 And how do I remove a repossession from my credit report?
- 4 What is the process of disputing a repossession on my credit report?
- 5 How long does a repossession stay on my credit report?
- 6 What can I do to prevent a repossession?
- 7 How can I improve my credit after repossession?
What exactly is repossession?
When you request a loan for a car, boat, motorcycle or other type of object, it becomes the guarantee of the loan. Thus, the bank or lender specifies when you must repay the principal of the loan, which includes any finance charges. When you don’t pay as required, you open the door to repossession.
Simply put, repossession is when the lender seizes the property and takes possession of it. In this case, you no longer own the item, but you still have the loan obligation associated with it.
There are two main types of repossession: voluntary and involuntary.. In a voluntary repossession, return the item to an agreed location, or call your lender to pick up the item at your residence. Under an involuntary repossession, the lender goes after the item on their own, pending the time they can repossess it.
Now, most people think they’re free from repossession when they’ve paid off their car. But beware. A repossession can occur if:
- You take out a car title loan and refuse to pay it back;
- You use your vehicle as collateral for a financial company or a personal loan;
- The Internal Revenue Service seizes your assets due to an unpaid balance;
- There is a judgment against you in civil court to confiscate your assets.
As unfortunate as it may seem, repossession is still a means for lenders from all walks of life to recover lost income from non-payment.
What happens during a repossession?
During a repossession, your property is rightfully and legally repossessed and sold to pay off all or part of your debt; Or at least it should be. The creditor must legally follow the state rules that apply to repossession. In fact, most states require the creditor to notify you of what they will do with your property.
According to the Federal Trade Commission, some states have rules on how your creditor can repossess the vehicle and resell it to reduce or eliminate the debt at issue. Creditors who violate any rule may lose certain rights, or have to pay you damages.
And how do I remove a repossession from my credit report?
You can remove a repossession from your credit report in some situations, especially if the repossession is inaccurate or unfair. There are a couple of things you can do to achieve this:
- Negotiate with the lender. The lender loses money when they repossess the item, so paying off the debt is cheaper and more convenient for them, even if you pay less than you owe. Try negotiating with them to see if the debt can be paid off and removed from your credit report. If the lender agrees, make sure you get the agreement in writing and strictly abide by the terms.
- File a dispute. If the negative entry is an error, contact the credit bureaus. They will investigate the matter and ask the creditor to verify the repossession information. If the lender can’t prove that the debt really belongs to you, the credit bureaus will remove the information from your credit reports.
What is the process of disputing a repossession on my credit report?
As we have explained in the previous section, one option to try to remove a repossession from your credit report is to start a dispute and show the credit bureaus that the entry is fraudulent, inaccurate, or that the information is out of date.
Here are some of the steps you need to follow.
- Check your credit report. You are entitled to one free copy from each of the credit bureaus each year, which you can get at Annual Credit Report.
- Take note of any errors. These may be incorrect dates or amounts, for example.
- Gather evidence to support your claims. Evidence includes proof of your identity, the incorrect account information, and documents that prove the information is false.
- Report the error to the credit bureau. They must investigate the dispute within 30 days and then report back to you with the results.
- If the lender cannot present evidence or corroborate the information, then the credit bureaus must remove the information from your credit report. Similarly, if the lender can prove that the information is correct, the account will not be deleted.
How long does a repossession stay on my credit report?
A repossession can stay on your credit report for up to seven years, which will certainly present an obstacle when applying for other loans. Ultimately, a repossession has a very negative impact, as it shows lenders that you were unable to meet your financial obligations.
What can I do to prevent a repossession?
Many people go through financial problems at some point in their lives. If you’re having trouble keeping up with your payments, you should immediately notify your lender to see if it is possible to change the payment plan.
For auto loans, if you know your financial difficulties will be temporary, you can talk to the lender to see if they’ll let you skip payments for a month or two. Some auto lenders agree to this without penalty, but you must contact them or you will be penalized. Talking to your creditor as soon as possible can prevent a repossession and allow you to keep your property.
How can I improve my credit after repossession?
If you’re approved for a loan or a new line of credit after being repossessed, making payments on time can help improve your situation. Now, in the case of a failed dispute, the only thing you can do is wait. eventually you credit score will improve and repossession will be removed. However, as you open new accounts and make payments on time, you should see improvement.