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Repairing Credit After Repossession in 3 Easy Steps

Written by: Kristy Welsh

Last Updated: September 23, 2017

As though it’s not tough enough losing your car to a repossession, your credit takes a huge hit, too. How much of a hit depends on how high your credit score was before the repossession. According to Bankrate, you could be looking at losing anywhere from 60 to 240 points. Needless to say, repairing credit in the wake of that damage needs to be a top priority. Here’s how.

1) Find out if your state allows you to “reinstate” the loan

Repair Credit After Repossession

If your state has a consumer protection law allowing for it, then you may be able to reinstate your car loan simply by paying the past due amount and covering the cost to the lender for the repossession. While this will not remove the repossession from your credit reports, it will give you an opportunity to make good on the loan. In the short term, the repossession will hurt your credit considerably, but if you reinstate the loan, you’ll at least have an opportunity to bring the account into good standing and keep your car.

Reinstating a loan should not to be confused with “redeeming” a car (i.e., buying it back) after it has been repossessed. You certainly may do this. And, in fact, some states require you to be notified if and when they’re selling the car so that you have an opportunity to buy it back. But in those cases, you’ll have to come up with the full price of the car, which may prove difficult if you didn’t even have the cash on hand to make your monthly payments. Just keep in mind that if you are able to redeem the car, the repossession will still remain on your credit reports.

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2) Pay off any deficiency

If the repossessed vehicle is resold for less than what you owe on the loan, then you are responsible for the deficiency. You do not want that unpaid balance on your credit reports, not to mention the fact that your lender can sue you for it. So negotiate a payment plan as soon possible. Just be sure that, during these negotiations, you ask the lender if – after you pay the difference – they will report the account as “Paid in full.”

3) Start building positive credit history

Once a repossession is on your credit reports, it’s going to be on there for up to 7 years. Unless it is a reporting error, there is nothing you can do to change that. What you can do, though, is flood your credit reports with positive credit history:

You Can Repair Your Credit After a Repossession

As much damage as a car repossession can do to your credit score, you can and will recover from it. Yes, you’re going to have to absorb a big hit for a while. But you’re best-served looking at this as an opportunity to take stock of the way you’re managing your credit and your overall financial life.

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