How Long Does a Repo Stay on Your Credit?

When you hear “repo,” you may think of involuntary repo. But some borrowers actually choose voluntary repossession to manage a debt.

Involuntary repossession

In an involuntary repo, a lender seizes the property you’ve offered as collateral on a loan because you’ve failed to make payments and gone into default. A lender may use a repossession agent to take your property, which may lead to additional repossession costs.

Voluntary repo

In a voluntary repo, you choose to surrender your collateral to a lender to avoid repossession costs and the stress of involuntary repossession. Voluntary repossession doesn’t necessarily resolve your debt, though. You may still owe a balance.

For example, if you voluntarily give your car back to the lender, you may owe fewer repossession fees, according to the Federal Trade Commission. But you’re still responsible for repaying the difference between the total amount you owe and the money your lender gets from reselling the repossessed vehicle. The lender may still report this activity to the credit bureaus and send your outstanding debt to a debt collector.

How to avoid a repo

You may be able to avoid dealing with repossession by jumping into action as soon as you start struggling with your loan balance.

To show good faith to your creditor, don’t wait until your property is being seized before trying to get them to work with you. Let them know you’re unable to make a payment as soon as you’re aware and see if you can work out a new payment plan with them. Your lender may offer to extend your loan term, lowering your monthly payment amount.

Securing a written confirmation is important when you work with your lender to update your loan contract. The CFPB suggests that if the lender offers to accept the vehicle as collateral in exchange for loan forgiveness, you should get the agreement and whatever terms are being updated in writing.

How does a repo work?

Repossession may work differently depending on the collateral type and the specific terms of your loan agreement. A lender may be able to repossess many types of property, like boats or motorcycles. But car repossession and home repossession are most common.

Car repossession

State laws determine how auto repos play out. The Federal Trade Commission explains that in some states an auto lender can repo your car without giving you notice, but they can't use force or the threat of force to get the car back. Once the creditor seizes your car, they may either keep or sell it to cover the loan balance. You may owe repossession fees following an involuntary car repossession.

Home repo

The process of home foreclosure is more complex than car repossession. The CFPB explains that while the process of foreclosure varies from state to state, mortgage companies generally begin the foreclosure process once you’ve fallen about 120 days behind on your mortgage payments. Lenders are required to notify the borrower of the foreclosure proceedings. Once the properties are auctioned, however, the borrower is given time to find another place to live before they must leave the home.

How can a repo affect your credit?

Your payment history makes up the biggest portion of your credit score. Since a repo indicates that you didn’t repay a loan, it typically appears on your credit report and damages your credit score. A repossession in your credit history may make it more difficult to qualify for credit cards, student loans, and other forms of credit. When you do qualify, you may have a higher interest rate.

Repossession may stay on your report for seven years, though its influence goes down over time. If you see a repossession on your credit report more than seven years after the original delinquency date, it's a good idea to contact the credit bureau and ask them to remove it.

Can you remove a repo from your credit report?

Once a repossession appears on your credit report, it’s tough to get rid of it before the seven-year period unless it’s a wrongful repossession. If you believe a repossession on your credit report is wrongful or inaccurate, you should file a dispute with the credit bureau and ask the creditor to reevaluate your account.

How can you repair your credit after a repo?

If a creditor has repossessed your property and you can’t get the repo removed from your credit report, you may take other steps to repair your credit.

• Make on-time payments. Prioritize making timely payments on all your credit accounts, even if it’s just the minimum payment. Using your credit card responsibly can help you improve your credit over time.
• Lower your account balances. Try to keep your credit utilization low by paying down any outstanding balances.
• Only apply for credit you need. Choose new credit carefully, as hard credit inquiries may further affect your credit score. Plus, you may not want to take on unnecessary credit card debt while recovering from a repossession. However, a secured credit card may help you rebuild your credit history, as long as you make timely payments and keep your balance low.

The bottom line

Repossession of your car, home, or any property may be frustrating and scary. If possible, try to avoid it altogether by making timely payments and maintaining an open line of communication with your creditor. If you believe your creditor has unlawfully repossessed your property, you should contact a lawyer to better understand your rights.

If you have experienced repossession, don’t despair. With responsible credit habits, you may rebuild your credit score and get your finances back on track.²