Repossession on Credit History

When you finance a vehicle purchase, your car serves as security on the loan for your lender. In the event that you do not pay your car payment, your lender may then seize your vehicle through a repossession to recover its losses. The repossession will then appear within your credit history.

Significance

A repossession is a significant negative mark on your credit report and has a derogatory effect on your credit score. Future lenders consider your credit history and score when you apply for new loans and credit. In addition, your credit may be pulled by employers, landlords and insurance companies. The lower your credit score, the less likely you are to be approved for the apartment, job, credit card or loan that you want.

Time Frame

The Fair Credit Reporting Act contains federal laws regulating the reporting period for each item that appears within your credit history. Repossessions may be reported for up to seven years. After the reporting period for your repossession expires, the credit bureaus must remove all evidence of your past vehicle seizure from your credit history. If the credit bureaus fail to remove the repossession, you can dispute it with each credit bureau as an "obsolete" entry.

Misconceptions

Many people mistakenly believe that a voluntary repossession does not do as much damage to their credit scores as an involuntary possession. Unfortunately, this is not the case. In a voluntary repossession, an individual voluntarily turns his vehicle over to his lender rather than the lender hiring a repossession agent to travel to the borrower's home and take the car. Regardless of the method you choose when turning your car over to your lender, your credit score will still suffer.

Considerations

Your FICO score is the standard credit score most lenders will pull when evaluating your credit. If you intend to purchase a car and plan to finance that car through the dealership, however, your car dealer may pull an Auto Industry Option Score (AIOS). The AIOS is available only to car dealers and differs from the FICO in that it places a higher emphasis on your past history with vehicle loans. If you have lost a car to repossession and a notation of the event still appears within your credit file, you can expect to have a much lower AIOS than FICO score.

Warning

Once your lender seizes your vehicle, it will attempt to sell the vehicle to recover the amount you still owe on the original auto loan. If the vehicle sells for less than the remaining loan balance, you are still liable for the difference between the amount left on the loan and the amount the lender recovered from the car's sale. This is known as a "deficiency balance." Your lender can sue you for the deficiency balance. If the lender wins, a judgment will appear on your credit report and cause additional damage to your credit rating.