How long does a repo stay on your credit?

Repossession is a legal process used by lenders to reclaim a purchase that you have financed. Whenever you finance something – such as a car or a television – the item you bought is collateral for the loan. That means if you fail to meet the terms of a loan agreement, the lender can take back the item you financed.

One of the most common types of repossession involves vehicles.¹ But it’s also possible to fall behind on other financed purchases, such as boats and electronics. Even a home can be repossessed. Repossession of a home is called foreclosure. Any repo can be stressful and ultimately may leave borrowers scrambling to fix their credit in the aftermath.

Repossession can have a significant and long-lasting impact on your credit score. A repossession typically stays on your credit report for seven years from the date of the first missed payment that led to the repossession.² During this time, it can negatively affect your ability to obtain new credit or loans.

Each phase in the repossession process can adversely affect your credit score. This includes:

• Loan default: Repossession – which is the result of defaulting on a loan agreement – results in one of the most severe negative impacts on your credit report.
• Lower credit score: A single repossession can cause your credit score to drop by 100 points or more,³ depending on your credit history.
• Late payments: The missed payments leading up to the repossession will be reported on your credit report.
• Collections: If a lender sells a repossessed item for less than you owe, they may send the remaining balance to collections, which can further damage your credit.

There are two primary types of repossession, voluntary and involuntary:

Voluntary repossession occurs when you, the borrower, realize you can no longer make your loan payments. In this scenario, you voluntarily surrender the asset to the lender. While this will still damage your credit score, it can be less harmful than involuntary repossession.

Involuntary repossession happens when the lender initiates the repossession process without the cooperation of the borrower. This often involves hiring a repossession agent to locate and seize a purchase that you have financed.⁴

Repossession usually occurs after a lender makes repeated attempts to collect delinquent payments. A loan default notice typically includes a due date for paying what you owe. Once the grace period is over, a lender can start the repo process.

Financing agreements almost universally give a lender the right to take back the property if you default on the loan. The lender has a security interest in the property that can be used if payments are not made as stated in the original purchase agreement.⁵

An agent of the lender, often a third party, typically carries out a repo. But there are limits, sometimes referred to as “debtor’s rights,” on how this process is carried out. Regulations vary by state. Consulting an attorney can help you protect your rights.

Preventing repossession is always preferable to dealing with the short- and long-term consequences of seizure. Here are some proactive steps you can take to reduce the likelihood of a repo:

1. Communicate with your lender: If you’re having trouble making payments, reach out to your lender immediately. Many lenders are willing to work out alternative payment arrangements, especially if you connect with them before defaulting on your loan.
2. Refinance your loan: If you’re struggling with high monthly payments, refinancing to a longer-term loan might lower your payments to a more manageable level.
3. Sell the asset: In some cases, you can sell an asset and use the proceeds to pay-off your loan balance. Avoiding missed payments and repossession can minimize any long-term damage to your credit.
4. Get help: A credit counselor or financial advisor can help you develop a budget and, in some situations, negotiate with creditors on your behalf. One good resource for credit counseling assistance is the Consumer Financial Protection Bureau. Many states and cities also offer free services to help people deal with credit-related issues.

Rebuilding your credit after a repossession should be a high priority. Here are some strategies to help you get back on track:

• Make all future payments on time. Your payment history is the most significant factor in your credit score, and consistency is key.
• Avoid maxing out your credit cards. This means keeping your credit utilization ratio below 30% for the best impact on your credit score.⁶
• Bring any outstanding accounts up to date by addressing any other delinquent payments to prevent further damage to your credit.
• Lower your credit card balances by paying down existing debt. This can improve your credit utilization ratio and boost your score.
• Review your credit score regularly and check for any errors on your credit report.
• Apply only for the credit you truly need. Too many hard inquiries by lenders – from applying for a new credit card or loan – can adversely impact your credit score.

Repossession is tough, but it’s not the end of your financial journey. While it stays on your credit report for seven years, the impact lessens over time. The key is managing your debts proactively and communicating with your lenders. If you’re struggling, meet with your lender to discuss options and seek help from financial professionals. With effort and responsible habits, you can recover and work toward a stronger financial future. Learn more about best practices for avoiding a loan default.