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Repossession and Credit

Created in collaboration with the credit experts at Experian

We’ve all heard about a tow truck showing up in the middle of the night and the new car not being there in the morning or about the store sending a moving crew to take back the big screen television right before a big game. It’s an experience none of us want to have, but repossession can happen if you are unable to repay the loan.

A repossession is one of the most serious delinquencies you can have in your credit report. This chapter answers the following questions about repossession:

What Is Repossession?

When a person cannot or does not repay a loan, the lender may claim the property purchased with the loan. The process of taking back the property is called “repossession.” The property can then be sold by the creditor to recover the cost of the unpaid loan.

There are two primary types of repossession:

  • Car: the most recognized form of repossession. Lenders may take back your car if you fail to repay the auto loan.
  • General property: Similar to auto repossession, but other forms of property purchased using a loan. Furniture or appliances, for example, may be repossessed by the lender to recover unpaid loan debt.

What is Repossession?


Loan is Not Repaid


Lender Takes Back Car


Lender Sells to Recover Debt


Can Affect Your Credit For Years

How Does Repossession Affect Your Credit?

Vehicle Repossession and Your Credit Report

Repossession of a car can seriously damage your credit history, and will likely have a significant impact on your credit scores — and your ability to qualify for new credit, goods, or services — while it appears in your report. Once the car is repossessed, the account will be updated to have a status of “repossession.”

A repossession remains on your credit report for seven years from the date the account first became late and payments were never caught up.

Once your vehicle is repossessed, your lender will sell it to recover the remainder of the debt owed. If the sale does not cover the entire remaining amount, you can be held accountable for the rest of the balance on the account.

If you don’t pay the remaining balance, the bank may send that amount to collections or could sue for the rest. If the lender forgives the remaining balance of the account, it could be reported as income for you. You would then owe income taxes on that amount.

If the account is sold to collections, the collection account could then appear on your credit report as well. It would remain there for seven years from the original delinquency date of the original auto loan.

A repossession and a collection account are extremely negative items in a credit report and could significantly affect your credit scores for many years.

General Property Repossession and Your Credit Report

With a general property repossession, your lender takes back possession of any items you purchased with credit and didn’t pay for as agreed in the credit contract. General property repossessions are generally reported to the credit reporting agencies as a charged off account or collection account rather than a repossession.

A collection account remains in your credit report seven years from the original delinquency date of the original account.

Both the original account and the collection account will be deleted at the same time. An unpaid collection account will hurt your credit scores while it appears in your report.

Some credit scores may not include paid collection accounts in their calculations. If you can pay off any remaining balance on the collection account and have it updated to show “paid,” you could help your credit scores right away.

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How Can You Prevent Repossession from Happening?

Talk to Your Lender


Transfer the Loan


If you are struggling to make payments on your car loan, you should contact your lender as soon as possible to discuss your options. Depending on your situation, you may be able to avoid repossession by:

  • Talking to Your Lender – If you know that you are going to have difficulty making payments, let your lender know as soon as possible. They may be able to work out a payment plan that will enable you to keep the car.
  • Selling the Vehicle – If your car is worth as much as, or close to, the balance on your account, selling it could enable you to pay off the loan without harming your credit. Even if the amount you sell it for doesn’t cover the full amount of the loan, you may be able to refinance the remaining balance, making your payments smaller and much more manageable.
  • Allowing Someone Else to Take over Payments – If your lender allows, you may be able to transfer your loan to another individual who will take ownership of the vehicle and assume the loan payments.
  • Refinancing the Loan – If your current interest rate is high but your credit is good, you may be able to reduce your payments enough to keep your car by refinancing your loan at a lower interest rate.

How Can You Fix Your Credit after a Repossession?

Although everyone’s credit history is different, the following steps will help anyone begin rebuilding their credit history after a repossession:

Pay on Time

Keep Credit Card Balances Low

Build Credit

Pay Past Debts

Know Your Risk Factors

  • Make Sure All of Your Payments Are Made on Time, Every Time. Your payment history is the single most important factor in your credit rating. Making your payments on time shows that you maintain your credit responsibly. One way to do this is by opening a Wards Credit account. Your regular, on-time payments can improve your credit scores over time.
  • Keep Balances Low on Your Credit Cards. The second most important factor is your utilization rate, which is the total of all your credit card balances divided by the total of all your credit card limits. The lower your credit card balances, the lower your utilization rate. Low utilization rates are good for credit scores. Ideally, you should pay your balance in full each month.
  • Build Credit when Purchasing Everyday Household Items. With a trusted organization like Wards, you can build your credit while purchasing furniture, clothing, electronics and more. Open a Montgomery Ward Credit account to get started.
  • Pay Off Any Past Due Debts. Bring any past due accounts current as soon you can. If you have accounts on your report that have been written off or sent to collections, paying them off will look better than leaving them unpaid.
  • Focus on Your Risk Factors. When you order your credit score, you will receive a list of the things that are most affecting your score. Called “risk factors,” they identify what you need to work on to make your scores better. Focus on those factors and you will improve your credit scores over time.

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