5 Min Read | November 17, 2022
How Long Does a Repo Stay on Your Credit Report?
A repossession, or repo, happens when a lender seizes property after a debt goes unpaid. Learn more about what a repo is – and how and why to avoid one.
At-A-Glance
A repo stays on your credit report for seven years.
Lenders can legally repossess your property if you default on what you owe.
It’s possible to take steps to avert a repo, such as negotiating payment terms or refinancing the loan.
There are ways to rebuild your dinged credit if a repo happens to you.
For many Americans, rising car and home prices can translate to more debt – and added budget pressure for the foreseeable future. The Consumer Financial Protection Bureau (CFPB) has expressed concerns that these conditions could create incentives for lenders to repossess cars sooner than they’ve done in the past, and it’s taking action to ensure that all repossessions are legal.1 The CFPB has also acted to help prevent avoidable home foreclosures, especially in the wake of the COVID-19 pandemic.2
Even with these consumer protections in place, a repossession can be a pending – or immediate – reality for some people. Worst of all, perhaps, it’s an event that stays on your credit report for seven years. But armed with a little financial literacy and discipline, it’s possible to bounce back from anything. Let’s take a look at exactly what a repo is, how to prevent one, and how to rebuild your credit if one occurs.
What Is a Repo and How Does a Repo Work?
A repo, short for “repossession,” is a process that can happen after a borrower defaults or fails to make payments on their loan. When a repo occurs, the lender takes back the property, usually to sell it in an effort to recoup their losses from the failed loan agreement. The exact repossession process can vary by state, but lenders often try to work with borrowers to work out payment options before jumping straight to a repo.
Two of the most common examples of a repo are an auto repossession and a home foreclosure.
When someone finances a vehicle, that vehicle serves as collateral for the loan if the borrower were to not make payments. With enough consistently missed payments and no sign of future payment, the lender could take away the car – potentially without notice. The lender might then resell the car to get as much of their money back as possible.
Similarly, when a homeowner cannot make payments on their mortgage, it may force the lender to sell the home in an auction to make back the money needed to cover the failed mortgage loan. A foreclosure can also happen if the borrower fails to meet other terms laid out in the mortgage document.
When repos happen, records are kept and reported to the three main credit reporting bureaus, Experian, Equifax, and TransUnion.
How to Proactively Prevent a Repo
Since a repossession usually occurs when someone stops making loan payments, the only real way to proactively prevent one is to make some type of payment to the lender. If you cannot afford to pay the whole amount or temporarily find yourself in a tough financial position, many lenders will be willing to negotiate a payment strategy before resorting to a repo, often because a repo can actually be more costly to a lender than allowing the borrower to repay the loan at a reduced amount. The key is to be up-front and proactive; this is not a good time to ignore missed or late payment notices.
Another proactive action that may be available to you, depending on your financial situation, is to refinance the loan. Simply stated, a refinance is when you replace existing loan or mortgage terms with new, possibly more favorable terms, such as a lower monthly payment.
How Does a Repo Affect Your Credit?
If a repossession has already taken place, it’s time to pivot to understanding how a repo affects your credit, how long it stays on your credit report, and what to do about it.
A repossession stays on your credit report for seven years, starting from the first missed debt payment that led to the repossession. In the credit world, a repo is considered a derogatory mark.
After a repo, it’s not unusual to see a person’s credit score take a substantial drop. Since credit scores comprise numerous factors, it’s hard to predict exactly how much a repo can affect your credit. In some cases, the effect could be big enough to drop you from excellent or very good credit to good or fair.
Tips to Rebuilding Credit After a Repo
Building back your credit after any derogatory mark can take time and effort, but that doesn’t mean it’s impossible. Here are some tips to get you started:
- Take inventory and reach out: Look at all your credit cards, loans, debts, and other necessary bill payments. Get a sense of where you stand with each lender and calculate how much you can afford to consistently pay each month. Once you have that number, reach out to each of the lenders to communicate a payment plan so they know you’re making an effort to bring all past due accounts current.
- Pay bills on time: Now that you know what you can afford to pay on a monthly basis, set mandatory bills on autopay. Since payment history accounts for about 35% of your FICO credit score, starting a new track record of paying bills on time will eventually reflect positively on your credit score.
- Become an authorized user: Having a repossession on your name probably won’t help you get approved for any other credit cards or loans, especially right after it happens. But becoming an authorized user on somebody else’s credit card can help rebuild your credit, as long as the card issuer reports authorized user activity to the three major credit bureaus. Take note, however: If the account owner overspends or misses payments, that could be negatively reflected on your credit. Becoming an authorized user is usually a good idea only if you and the account owner commit to good credit and payment habits.
- Find a credit counselor: Finally, it may make sense to use the service of a credit counseling agency, but the key is to find a dependable one that understands your financial situation, as there are many illegitimate companies looking to scam consumers. The U.S. Department of Justice provides a state-by-state list of approved credit counseling agencies that may be able to work with you to help repair your credit.
The Takeaway
Even if bills are mounting, it’s important not to lose sight of the fact that tough times don’t have to last forever. With a little financial literacy, hard work, and discipline, preventing – or recovering from – a repo is possible. If you’re struggling to make auto or loan payments, it’s important to be proactive and reach out to your lender to try to establish a new payment plan.
1 “CFPB Moves to Thwart Illegal Auto Repossessions,” Consumer Financial Protection Bureau
2 “CFPB Takes Action to Prevent Avoidable Foreclosures,” Consumer Financial Protection Bureau
Jordan Awoye is an experienced financial advisor who has focused his practice on assisting individuals and business owners to achieve their financial goals. His work has been featured in numerous media publications, such as Forbes, CNBC, and The Sun.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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