Credit Repair After Car Repossession

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - December 29, 2020

It's possible to repair your credit and get the vehicle you need after a repossession. You may have to do some searching, though, if you want to repair your credit with another auto loan right away. A car repo affects your credit score and reports in a few ways, but you still have options.

Car Repossession and Your Credit

A repossession happens when you default on your auto loan, typically as a result of missing payments or otherwise breaking the rules outlined in your contract. Your lender then sends a recovery company to repo your vehicle.

Once your car is taken, the lender generally prepares it for private sale or auction. Once the vehicle sells, the profit is applied to your loan balance and you're required to pay anything that wasn't covered.

The repossession is listed on your credit reports and your credit score takes a hit, too. The amount of points you lose depends on your specific situation, and what's listed on your credit reports.

If you missed payments leading to the repo, those missed payments and the repossession are both listed on your credit reports, lowering your score. Additionally, if there's a deficiency balance after the car sells and you don't pay, the account is likely to be placed in collections bringing your score down even more.

A repo stays on your credit report for seven years, but its impact lessens over time. However, it's usually difficult to get an auto loan with a traditional or subprime lender within a year after a repossession.

Steps to Repairing Your Credit

Your credit score fluctuates over time, but once it takes a hit like a repossession, you likely need to take action to see real improvement in your score. The good news is that the steps you can take after a repo usually take minimal effort for maximum improvement.

Here are four steps you can take to improve your credit after a repo:

  1. Lower your credit card usage – If you have a high amount of credit card debt, getting that under control can make a big impact on your credit score. Lenders generally see people with lower credit card usage as a lower risk when it comes to getting an auto loan. Work to pay off your credit card debt to 30% or less of your total credit limit, but don't close your accounts. Responsible credit card usage can improve your credit score over time.
  2. Pay all your bills on time – One of the simplest and most effective ways to improve your credit score after a repossession is to pay every bill on time. If missed payments are what lead to your vehicle repo in the first place, then showing an improvement in payment history can really turn things around. Payment history is the biggest factor that impacts your credit score, making up 35% of it.
  3. Get a credit builder loan – Credit builder loans work like a loan in reverse. Rather than getting the money first and repaying your lender in installments, you make payments into a savings account up to a certain point, which is typically around $1,000. Each on-time payment you make is reported to the credit bureaus, which improves your payment history. Once you've made all the payments, you get the money.
  4. Open a secured credit card – A secured credit card requires you to make an initial deposit, which usually becomes your credit limit. If you make your payments on time and avoid maxing out your card, you eventually get the deposit back and you build a solid payment history. If you don't make your payments, the money you deposited is used to pay the balance and your credit limit gets lowered. If credit usage isn't an issue for you, a secured credit card could be a way to go. This adds a line of revolving credit to your credit mix, which can give your credit a boost, as well.

Getting a Car After a Repo

After a repossession, it can be hard to go through more traditional channels for getting a car loan, like banks, credit unions, and even subprime lenders, but you still have few options.

First, you can always buy a cheap used vehicle in a private sale, or from a car lot for cash. However, many people don't have the savings to be able to comfortably do this.

If you need an auto loan less than a year after your first vehicle repo, you likely need to visit an in-house financing dealership. These places, also known as buy here pay here or tote the note car lots, don't rely on outside lenders so they don't typically pull your credit reports or score. With in-house financing, the dealer is the lender, and you're limited to the used vehicles on the lot.

These can be a good options for a car to get you through until your credit score improves, or your repo is more than a year old.

Auto Loans After Repossession

Once it's a year past your repossession, you can more easily get an auto loan. A car loan is a wonderful way to build your credit score after a repo. However, since your credit score has taken a hit, you may have to finance through a subprime lender. These lenders specialize in helping consumers with poor credit get the vehicles they need!

In order to get you approved for financing with a lower credit score, these lenders use outside factors in addition to your credit score. These normally involve your ability, stability, and willingness to take on an auto loan.

Subprime lenders are signed up with special finance dealerships – not every dealer can work with bad credit borrowers. It can be hard to know which dealerships have the lenders you need, unless you get a helping hand from us!

Let CarsDirect Point the Way

At CarsDirect, we can be your roadmap toward the financing you need! We have gathered a nationwide network of special finance dealers from across the country, so you can skip the search when it comes to getting connected to a dealership in your area. All you have to do is fill out our fast, free car loan request form, and we'll get right to work matching you to a dealer.

There's never any obligation to buy, and we've got 20-plus years of experience getting consumers connected to dealerships that can help. What have you got to lose? Get started now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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