How Many Points Does A Repossession Drop Your Credit Score (?)

Back in 2009 at the height of the economic recession I had a small business owner client that got slapped by an automobile repossession right before we were about to do the funding. He slipped through our pre-qualification process by sending us a credit report that was pulled 3 months prior. Usually, it’s not an issue, most of our clients are pretty honest with us about their credit situations, it just doesn’t make sense to lie about it because we’d still know about it anyway, and then you’d just be wasting everybody’s time. Not in that case though, I guess because of the times that we were in at that moment economically, and maybe because he needed the funding that bad that’s why he resorted to misleading us on his credit situation, just so that he could get into our funding program. On the report that he sent us, his FICO score was at 740, and as a company policy, we don’t deal with clients with FICO scores below 720, and I guess he was aware of that one too. So we took him into our funding program, worked on his business credit, and proceeded to do the funding 45 days later. On the day of the funding though, after we submitted all the applications, we then started to get rejections from different banks almost instantly, one after another. This kind of occurrence usually doesn’t happen with us, by the way we structure our loan applications and submissions for our clients, it was an unusual occurrence. We were so alarmed by it that we called the client right away. On the phone, he assured us that there were no changes at all with his credit report, and if there were any, it would be a positive one. After the call, me and my funding team went on a meeting and decided that the only way we could get to the bottom of the loan rejections was to ask the client to provide us with his most recent credit report, or else we’re going to need to inform him that we can’t issue him any refund at all. We informed him about it, and the next day he sent us his most recent credit report, and on that report, we found out that he had missed multiple car payments and got slapped by a repossession during the past 3 months while he was our client. We saw his FICO score tanked drastically on the report and terminated our funding services with him. There was no point in working with him anymore because we couldn’t do anything with his credit score. It was a great lesson for all of us at the firm, but this real-world example shows us how damaging a repossession is on a consumer’s credit report. It is of great importance to plan in advance financially so that you could easily stay clear from this kind of predicament.

So how many points does a repossession drop your credit score?

A repossession could shave off 100 to 150 points from your FICO score and it stays on your report for 7 years. Although it’s very damaging to your credit score, it’s of great importance for consumers to know that a repossession is usually the last resort of your lender. As much as possible they would want you to keep your car and to keep paying the note. Sending your car for repossession is an extra cost for them which drastically affects their bottom line  There are still a lot of things you could do before it gets to a point where they would have to send someone to repossess your car or truck, you just need to communicate with your lender and work things out. There are just way too many options you could do to avoid repossession (You’ll find it all in this article), I suggest that you explore all of it first, rather than just giving up right away.

how does repossession work? How to prevent it?

 Repossession doesn’t happen right away, it’s really the last resort of your lender after they’ve exhausted all methods of collecting from you. Usually, they’d give you 60 to 90 days before they’ll send someone to pick up the vehicle, but on the days before that, you’ll get a lot of phone calls from your financing company. Use those days to communicate and negotiate with your creditor, and show them that you’re in good faith and is very motivated to continue and update the car note. To them, a repossession would just be their last resort. As much as possible they would want you to stay in the loan and keep paying fees. 

In terms of how to prevent it, careful financial planning is really of great importance in this situation, but if you’ve failed to prepare or your preparation just wasn’t enough, here are some of the ways you could do for damage control.

Sublease your car

If paying it gets too hard you can always sublease it to someone you know. Just craft a contract that’s beneficial for both parties and then that’s it. It’s a win-win situation. As for you part, this would be a better alternative than being slapped with a repossession on your credit report 

Rent it out

There are a bunch of apps other such as turo and get around where you could rent out your car to different people. Just a few days of renting out your car to someone could generate you cash to cover your monthly car payments.  

Use it to generate cash

If you don’t like anyone driving your car, you could always use uber and Lyft to generate cash to pay your monthly payments. There are drivers out there who are making $6,000 a month just by driving people around. Now let’s be honest here, even at half of that $6000 dollars, still, it’s way more than enough to pay your monthly car bills. 

Ways to Prevent a repossession from showing up on your report.

There are a few ways to prevent a repossession from showing up on your report. The First would be to settle the car note, second is to ask for a deferment of your payments together with the fess and the third would be to reinstate after a repossession. With the third solution, which is to reinstate it, you can still negotiate with your lending company after the repossession. You’d let them know that you’ll continue the car note and request them to update your account so that it doesn’t have to show on your report. Of course this one would involve paying all the late payments and fees which could be quite sizable, but with this solution, you could still save your credit score from the imminent cliff dive.  

 How can I fix my credit after a repossession?

 After a repossession, the only way to remove that negative item from your credit report is to dispute it using the fair credit reporting act. IF the repossession is still brand new the likelihood of it getting removed is still slim. The probability of it getting removed only increases after a year or more using the fair credit reporting act. With the act, by law, the credit bureaus are given 30 days to investigate inaccurate information on your credit report. All three credit bureaus (Experian, TransUnion, and Equifax) need to verify that the item or items on your report are really yours. The burden of proof is on them, all you really need to do is request an investigation in writing to verify it. If they couldn’t verify it within 30 days, by law they have to remove it whether it’s really yours or not. Now, if the repossession is still new all the paper works are still with the lender so it’s still quite easy and accessible to verify it, but the longer it goes, those files are moved around or sometimes even lost, and when it’s lost it’s really quite hard for the credit bureaus to verify. 

How long does it take for a repossession to fall off your credit?

 Typically it stays on your report for 7 years, that is if you’re being passive about it. If you want it removed sooner then you need to use the fair credit reporting act to your advantage. Here’s a step by step guide on how to do it.

Step 1:Pull your credit reports from the 3 main bureaus using freecredireport.com

Step 2: Pull out the entire repossession information from the report

Step 3: Write a dispute letter to all the 3 bureaus ( 1 letter each) requesting to verify the repossession on your credit report.

Step 4: Mail the letters out to all the bureaus using certified mail with receipt signature.

Step 5: Wait for the response from the bureaus within 30 days. If there’s no response send them a letter again highlighting the FCRA act, let them know that they have infarcted the FCRA statute therefore they have to remove the repossession from your report.  If there’s a response do the process all over again until they take it off.