When your car is repossessed, you’re understandably concerned about how long this will stay on your credit report. Here’s how long and what happens in the process.

The Short Answer: Seven Years

A repossessed vehicle will stay on your credit report for seven years. However, the waiting period doesn’t start on the day your car is towed away. It starts on the day of your first payment that was not made to bring your account current (also known as the delinquency date). The waiting period may have started many months or years before the actual repossession.

If your first payment for the year was due in July, and the vehicle was repossessed in November, the first entry will be removed in July of a later year. Many people are surprised and disappointed by this, because they often think the waiting period would start from the time the vehicle was repossessed.

Note: The example above only describes the first of several entries associated with the repossession. 

Voluntary Surrender vs. Involuntary Repossession

People sometimes give, or “surrender,” their vehicle to the lender to avoid having their vehicle repossessed. Repossession is usually avoided because a borrower doesn’t want to deal with the costs associated with the lender taking back the vehicle (repossession costs) and the embarrassment of having a vehicle towed. Some lenders view borrowers who voluntarily surrender a vehicle more favorably than borrowers who allow their vehicle to be repossessed. 

However, from a credit report perspective, both voluntary and involuntary surrenders are reported the same way: as a default. Also, the voluntary surrender is reported the same way and for the same length of time as an involuntary surrender, which is 7 years from the date of the first missed payment.

How Much Does It Hurt Your Credit?

There are also credit score impacts from the surrendered vehicle that occur before the default is reported. The surrendered vehicle replaces other credit obligations (like credit cards) and is normally reported as a default to the credit bureaus. 

The average credit card default will cause a larger and more immediate credit score impact than a default of a surrendered vehicle. However, if the credit report already contains several credit card default listings and/or other negative credit report items, a default of a surrendered vehicle will likely have less of an impact.

What About the Money You Still Owe?

Repossession doesn't usually mean you no longer owe money. A loan or lender recoups part of their losses by selling the repossessed vehicle. If the sale price is less than what you owe, the difference becomes a collections account and can also be reported to the credit bureaus, which can result in another collection notice and repossession on your credit report. 

Collections accounts also have a 7-year reporting time. In some cases, people get the perception that their old debts keep coming back or "renewing" because of a new collections account and the repossession.

Can You Get It Removed Early?

You probably can’t. The Fair Credit Reporting Act (FCRA) allows for the removal of inaccurate information, but requires that legally reported information be retained. The Act does not allow credit reporting agencies (CRAs) to remove accurately reported information simply because it is inconvenient. The only way to have accurately reported information removed is to negotiate a “pay for delete” with the original creditor. Still, larger financial institutions will not delete accurately reported information because they have no legal requirement to do so. 

Incorrect information gives you the opportunity to have information deleted. The most common types of credit report errors involve repossessions. These may include incorrect or missing balance information, an incorrect date, or a duplicate listing. You are also entitled to dispute a settlement balance if it does not reflect the amount that was actually settled. If you provide evidence to a CRA that a balance is erroneously reported, the CRA is required to remove the information.

Information regarding a repossession that was reported more than seven years prior to the original delinquency may also be removed, even if it is accurate.

A Quick Note on Bankruptcy

The seven-year waiting period for the removal of a repossession is shortened to three years if a repossession occurred as a result of a bankruptcy filing.

What to Do in the Meantime

While you're likely feeling discouraged as you look at the seven-year mark, keep in mind that the effect this has on your score is not set in stone and actually fades over time. The first year or two actually feels longer and worse, as lenders typically focus on more recent activity when determining your score. So, while your score is likely to take a major hit when an account is repossessed, it will actually begin to climb again over time, as long as your activity stays neutral or positive. With that in mind, here are some things you can do in the interim:

• Keep your other accounts positive. The quickest way to rebuild your credit score is to have other accounts closed or open and then paid on time.

• Check your report for inaccuracies. Reporting agencies often make mistakes, and you should check your reports for inaccuracies, especially since the repo was reported to the credit agency. Oftentimes, the date of the repo, the balance owed, and even the status can be inaccurate.

• Look for deficiency balances becoming separate collection accounts and actively address this to avoid it coming back and biting you later.

• New credit accounts can be a good idea to build up your credit score after a repossession. Multiple new accounts in a short time frame probably isn’t a good idea while your credit score is this volatile.

Conclusion

A repossession will be on your credit report for 7 years from the delinquency date of your first payment. The date your car was repossessed is not as important. The first time your payment was late is the time that jumps out the farthest and gives the repossession the longest time to impact your credit report. The first couple of years of a repossession will be the most unpleasant and noticeable to you and potential creditors. The impact of the repossession will lessen and seem less significant to you and others as time goes on. If something doesn’t look right about your repossession entry, you have the right to dispute it. Don’t just accept an incorrect or outdated entry.