How long does it take for a repossession to show on your credit

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Repossession — the seizure of property that usually occurs as a result of nonpayment of a debt — can happen quickly and without warning. Although some lenders may technically be able to repossess collateral immediately after a missed payment, most repossessions take place on accounts that are 10 days or more past due.

Any item used to secure a loan or a line of credit can be subject to repossession if the debt goes into default. This can include your home (which means foreclosure), your car or any other item that you purchased with credit, such as furniture, electronics, appliances, boats and motorcycles.

Read below to learn about how repossession works, how to avoid it and what to do in the event that your property is repossessed.

How repossession works

There are two types of repossession: involuntary and voluntary. Involuntary repossession occurs when the lender sends a debt collector to seize the defaulted property in order to secure the loan. Voluntary repossession, on the other hand, occurs when the borrower decides to surrender the collateral to avoid the additional costs incurred when there’s an involuntary repossession.

In both cases, the lender will sell the surrendered property to recover as much of the outstanding balance as possible. You will then owe any remaining balance not satisfied by the sale. You will be notified about the sale and can even participate in the bidding. However, keep in mind that only cash is accepted at auctions. If you had the money, you would likely have made the payments in the first place.

How to Avoid Repossession

The best way to avoid repossession is to be up-front with your lender if you’re having difficulty making payments. In most cases, they would rather negotiate a payment plan than repossess the item, especially if you are underwater with your loan and the lender is unlikely to get enough from a sale to satisfy the debt.

Discuss payment options or changes to your loan terms with your lender that will not negatively impact your credit history. Also, be sure to secure a written agreement — not a verbal one — as that’s the only way to protect yourself if the lender violates any conditions of your updated contract.

Avoiding your creditors if they contact you about an overdue balance is not a good idea. If they feel you aren’t responding to normal communications, they may find it necessary to get your attention using more aggressive methods, such as repossession.

After repossession

Once completed, repossession is a fact that you cannot easily erase. In fact, it will appear on your credit history for seven years.

However, the consequences of voluntary and involuntary repossession are not the same. If you return your property to your lender voluntarily, you may avoid additional fees. Further, you will have peace of mind that a debt collector is not going to show up at your door.

In either type of repossession, be sure to order your credit reports so that you can examine the details. If any of the information reported by the lender is incorrect, you can dispute it.

If you feel that your property has been improperly repossessed, you can hire an attorney to dispute the repossession. There are many laws governing the repossession process, so if you document anything illegal, you may be able to get your property back.

Rebuilding credit after repossession

If the repossessing agent has done everything correctly and your vehicle or other property is gone forever, there is little you can do but try to rebuild your credit history and improve your credit scores.

You can sometimes add a statement to your credit reports explaining the circumstances that caused the repossession. It won’t remove the notice completely, but if there are extenuating circumstances, you’ll at least have a chance to describe them. But remember: While consumer statements on credit reports can be read by lenders (and might help mitigate concerns), they will not help you increase your credit scores.

While being involved in a repossession can be emotionally draining, it’s important to pick yourself up, review your finances and get back on track. Being proactive and reviewing your credit reports and finances will help keep repossession from happening again.

Vehicle loans and lease agreements use the car as collateral for the loan. If you stop making payments, the lender can take back the car through repossession.

A repossession — and the road leading up to it — can affect your credit in four ways, and the overall damage can be considerable. Once reported, repossession will remain on your credit report for seven years, much like other negative information on your credit report.

How credit score damage stacks up

1. Late payments

Any payment you make at least 30 days late can be noted on your credit reports. For every month that goes by without catching up, another mark can be added. If you skip two car payments, for instance, your credit reports will show both a 30-day late notice and a 60-day late notice. Because payment history is the largest of the factors affecting credit scores, the damage can be considerable.

Late payments stay on your credit reports for seven years from the date of the missed payment.

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2. Loan default

Defaulting on a loan means you failed to uphold the agreement of the loan. Your loan can be considered in default 30 days after the payment was due. Because repossession is a hassle, however, your lender likely won’t consider you in default until 90 to 120 days of late or insufficient payments.

Your contract should lay out the lender’s conditions for determining default. The lender may be more lenient if you have an otherwise good payment history.

A defaulted car loan will show on your credit reports for seven years from the point the account became delinquent and was never again brought current.

3. Repossession

Lenders generally can repossess the car at any point once you're in default. Typically, they do it no earlier than 60 days after you miss a payment.

Repossession is its own mark on your credit reports, which will linger for seven years from the original delinquency date.

4. Collections

Once the lender takes the vehicle back, it usually will resell it to recoup its losses. If the vehicle sells for less than you owe, you’ll have to pay the difference, known as a “deficiency balance.” The lender may also charge you towing and storage fees associated with the repossession.

If you don’t pay the remaining balance and repossession fees, the account may be turned over to collections. The collections account can appear on your credit reports and will stay for seven years from the time the original account became delinquent.

Further, the debt collector can sue you if collections efforts fail. If the debt collector wins or you don’t show up in court, a judgment against you will be granted.

How to rebuild credit after repossession

After repossession, you’ll be deemed a high-risk borrower, making it harder to get financing for your next car. If you can get a loan, it will carry higher interest. (Here are five ways to recover after a repossession.)

There is some good news: The effect of any negative mark on your credit reports fades over time. You can work to restore your credit after repossession by stacking up positive marks to offset the negatives. Here are three tactics:

• Make on-time payments: Payment history is the biggest single factor determining your credit score, so be sure to pay every bill on time and in full.

• Use a small portion of your available credit: The next biggest factor in your score is credit utilization, which is how much of your available credit you use. Experts say to keep it below 30%, and much lower is better.