How to Fix Credit After a Car Repossession – 10 Methods

If the lender has repossessed your car, the situation can be very frustrating and damage your credit score. But do you know how to fix credit after a car repossession? You can fix your credit score after a car repossession by checking your credit reports for errors, disputing any wrong information, paying off overdue debts, lowering credit card balances, paying all bills on time, using a credit builder loan, and so on. In this guide, I will discuss the 10 best ways to rebuild your credit score and ways to eliminate the bad effects of repossession from your credit score.

Table of contents

• Understanding Car Repossession
• How to Fix Credit After a Car Repossession – 10 Best Methods
• Smart Tips to Fix Credit After a Car Repossession and Rebuild It
• Can You Remove a Repossession From Your Credit?
• How Long to Rebuild Credit After Repossession?
• Conclusion
• FAQs

Understanding Car Repossession

Before knowing about the steps to fix credit after a car repossession, here is an overview of what a car repossession is and how it impacts your credit.

What Is Car Repossession and Why It Happens

When you stop paying the car payments, the lender takes back the car, which is called car repossession. If your car is on lease, the lender owns the part of the car and has the right to take it back if you miss too many payments. The lender has the legal right to repossess your car if you continuously miss around 3 to 4 payments. You can take legal action against car repossession, but still, you will have to settle some disputes with the lender before reaching a conclusion.

How Car Repossession Impacts Your Credit Score

The car repossession highly affects your credit score and makes it difficult to lease cars in the future. It shows future lenders that you did not pay back your loan and that you are not trustworthy. A repossession also makes you look like a risky borrower, which means you might only qualify for loans with high interest rates. So, you must take quick action to fix credit after a car repossession because delaying it will make it harder to resolve.

How Long a Repossession Stays on Your Credit Report

According to the Consumer Financial Protection Bureau (CFPB) and credit reporting agencies, the repossession can stay on your credit for up to 7 years. Even if you manage to pay off the remaining loan on your car, the repossession will still be on your credit till expiration. However, after 7 years, the repossession will automatically be removed from your credit report.

How to Fix Credit After a Car Repossession – 10 Best Methods

Do you want to fix the credit score after repossession as soon as possible? Here are the 10 best ways to fix credit after a car repossession:

1. Check Your Credit Reports for Repossession Marks

The first step is to check your credit report and carefully check the accuracy of everything. The major credit bureaus, like Experian, Equifax, and TransUnion, allow one free credit report per year. So, take it and find where it says your car was repossessed, and make sure all details are correct, including dates, amounts, and status. If you feel something is wrong, quickly report it because it will boost your credit score faster.

2. Dispute Wrong Details to Fix Credit After a Car Repossession

You can easily dispute any errors on your credit report, like a wrong date, wrong amount, or a loan. You can report the mistakes using the online reporting system or send a postal letter. If the bureaus find that your highlighted mistakes are true, they will correct them. This way, you can fix your credit after a car repossession with the help of reporting errors and fixing them. Make sure to include proof like emails, payment records, or loan statements in the report you send.

3. Pay off overdue accounts and old debts

Paying off overdue accounts and old debts also helps to fix credit after a car repossession. If your car was repossessed and you still owe some money, that money is called a deficiency balance. Making efforts to pay the remaining loan can produce a positive impact on your credit report. You can also pay off other small debts like medical bills, old phone bills, or personal loans. Paying overdue loans shows other lenders that you are making an effort to pay the pending amount and shows that you are trustworthy.

4. Lower Your Credit Card Balances Quickly

Another way to fix credit after a car repossession is by lowering the amount of money you owe on your credit card. This amount is called the credit utilization rate, and it is recommended to keep it below 30% of your limit. For example, if your credit card limit is $1,000, try to keep your balance below $300. So, if you pay more than the minimum limit, the balance will reduce faster, and a lower balance will automatically increase your credit score.

5. Pay All Current Bills on Time to Fix Credit After a Car Repossession

One of the most helpful ways to fix credit after a car repossession is to pay all bills on time. This includes all bills like rent, utilities, phone bills, and credit cards. Paying bills greatly affects your credit score because it covers around 35% of your credit score. I recommend you set up reminders or automatic payments to make sure you never miss a due date and your credit score stays high.

6. Use a Credit Builder Loan for Faster Recovery

A credit builder loan is a small loan designed to help people improve their credit. In this method, you borrow some money from the bank, but the bank holds the money in a locked account. As you continue to make the monthly payments, the bank reports it to the credit bureaus. After paying off all the loans, the bank gave the money into your hands. This can fix your credit after a car repossession and can raise your score in 6 to 12 months.

7. Become an Authorized User on Trusted Accounts

Becoming an authorized user on the account of other trusted users also helps to fix credit after a car repossession. This way, the good credit habits of those authorized users will also be reflected in your credit score. Just being linked to their account gives you some of their positive credit history. Be aware that if your linked account misses payments, the bad impact on their credit score will also be reflected on your credit.

8. Only apply for the credit you actually need.

Applying for too many credit cards or loans in a short time can hurt your score. Therefore, only apply for credit when you really need it. The more careful you are, the better your credit will recover after a car repossession. Moreover, before getting a new car on loan, you must be aware of what happened to your debt after repossession. In many cases, the borrowers still owe some money after repossession.

9. Use Subprime Auto Loans If Buying Another Car

If you urgently need another car on loan after a recent repossession, you can look for subprime auto loans. These loans are specifically designed for users with low credit scores but often come with higher interest rates. To secure the best rates, you can compare different lenders, check for hidden fees, and make sure the monthly payment fits your budget. Finally, make sure you make payments on time to fix your credit after a car repossession.

10. Get a Co-Signer to Fix Credit Score After a Car Repossession

Another recommended method to fix the credit score after a car repossession is getting the help of a co-signer. The co-signer is a person who takes the responsibility to pay your car loan in case you fail to do so. Getting help from the co-signer is also one of the best car repossession loopholes that can stop repossession. It is important for you and the CPS igniter to understand the risks. If you miss payments, it can hurt the credit scores of you and your co-signer.

Smart Tips to Fix Credit After a Car Repossession and Rebuild It

Here are some smart tips to easily fix the credit after a car repossession and rebuild the credit history:

• Keep Your Credit Utilization Below 30 Percent: One of the smartest and easiest ways to fix credit after a repossession is keeping credit card usage below 30%. For example, if your credit card limit is $1,000, try not to use more than 30%, which is $300. This indicates to the lenders that you are trustworthy and do not rely much on credit.
• Track Your Credit Score Monthly for Progress: Keep regular track of your credit so that you become aware if the score goes down. Watching your score can also help you spot mistakes early and fix your credit score if your car is repossessed.
• Get Credit for Non-Traditional Payments: One of the common ways to build credit is by paying non-traditional payments. Some services let you get credit for paying rent, utility bills, and even streaming services like Netflix.
• Avoid Maxing Out Your Credit Cards: Never use all the money on your credit card because it can hurt your credit score. For example, if your card has a $500 limit, do not use more than $200. Keeping the spending under control keeps your credit score in a good position.

Can You Remove a Repossession From Your Credit?

Many car owners might be thinking that they can remove the car repossession from their credit or not. Here is the brief on the removal of repossession from credit and the steps involved in it:

Is It Possible to Remove a Repossession Early?

Yes, you can, but it requires a lot of effort because repossession stays on credit for up to 7 years in normal cases. However, if there was a mistake or you can work out a deal with the lender, you can request to remove repossession from your credit. Please keep in mind that the sooner you are able to remove repossession, the easier it will be to improve your credit score.

How to Request Repossession Removal From Bureaus

If you have decided to request the removal of repossession and fix the credit after a vehicle repossession, the process is easy. Just write a letter to the credit bureaus and ask them to remove the repossession. This is called a goodwill letter. You do not need to write too much stuff in the letter. Just explain your situation and why you missed payments in the letter and send it.

Negotiate With Lenders to Settle the Account

Another way to fix your credit after a car repossession is by settling the debt. Contact your lender and try to make a deal. If they agree to make a deal with you, there will be no bad impact on your credit score.

How Long to Rebuild Credit After Repossession?

If you fail to fix credit after a car repossession, rebuilding the score takes time. Fixing the credit score can take several months, and you might encounter different hurdles during this period. Here are some details about the average time frame for rebuilding a credit score:

Typical Timeframes to Improve Your Credit Score

The average timeframe to enhance the credit score is from 12 to 18 months after a car repossession. This timeframe will only be applicable if you follow good habits like paying bills on time, using less credit, and not taking too many loans.

What to Expect in the First 6 to 12 Months

In the first 6 to 12 months, your credit score will be very low, and you might face challenges in getting a new loan. If you work hard during this time, your score will slowly start to rise. Therefore, the first priority is to fix credit after a car repossession using any of the above-mentioned 10 methods. If you fail to do so, be patient and keep paying the remaining payment to rebuild credit.

Conclusion

The car repossession is really very frustrating and badly impacts credit scores. You can fix your credit after a car repossession by checking your credit reports, disputing errors, paying off old debts, lowering credit card balances, paying bills on time, using credit builder loans, becoming an authorized user, and other methods. Rest assured that it is never too late to start rebuilding and move forward with confidence.