8 Steps To Rebuild Your Credit After Repossession

Vehicle repossession can significantly impact your credit score and limit your qualification for good loans from future lenders, as well as your ability to open credit card accounts, and your overall financial flexibility. 

If you have lost ownership of your car, you may be wondering - can you rebuild credit after repossession?

While repossession can be damaging in the immediate term, the good news is you can rebuild your credit with a few smart strategies such as:

• Bringing delinquent accounts up to date

• Paying off any outstanding debts

• Making all future payments on time

• Keeping credit utilization low

 Let’s take a look at these strategies one by one.

How To Rebuild Your Credit After Repossession

Losing ownership of your property due to a late payment isn’t the end of your credit journey. There are multiple ways to rebuild your credit after a repossession. 

Monitor Your Credit Reports and Score

Firstly, carefully monitor your credit report and score as you practice the below strategies. You can access your credit report for free through Borrowell.

Bring Past-Due Accounts Up to Date

To rebuild your credit after a repossession, try to bring any remaining past-due accounts under your name up to date. These accounts include:

• Utility bill accounts, such as for water and electricity

• Accounts for ongoing services, like streaming subscriptions

• Accounts for other loans, like your mortgage

Past-due accounts consistently drag your credit score down and will stand in the way of your attempts to rebuild it.

Pay Off Any Outstanding Debt

Next, save money until you can pay off your remaining debt obligations, including any deficiency balance resulting from the repossession. Clearing the debt under your name means your credit score will recover more quickly. If you have multiple debts to pay each month, consider a debt consolidation loan.

Make On-Time Payments

Once your accounts and deficiency balance are paid off and you don’t have other major outstanding loans (except a mortgage loan, perhaps), make on-time payments for any remaining bills and ongoing expenses. Use auto-pay features to ensure that each monthly payment is paid on time and in full.

Making your payments on time for utility bills, loans or credit cards is the best way to show credit bureaus that you are working to rebuild your credit earnestly.

Become an Authorized User

To accelerate the rebuilding process of your credit history, ask someone in your circle of family or friends to permit you to become an authorized user of one of their credit cards.

This is a great way to build credit. Once you’re an authorized card user, you can use that credit card for small purchases, then pay down the credit balance each week. Again, this shows the big credit bureaus that you are responsible and trustworthy with loans and credit lines. 

Keep Credit Utilization Low

Your credit utilization rate is essentially the percentage you’re using of the total credit you have available to you. For example, if you have a credit card with a maximum credit limit of $1000 and you’re carrying a balance of $200, your credit utilization rate is 20%.

A low credit utilization rate helps boost your credit score by showing the credit bureaus that you use your available credit sparingly and responsibly.

Get a Secured Credit Card or Credit Builder Loan

As your credit history improves, you may qualify for a secured credit card. Secured credit cards use security deposits (usually a few hundred dollars) as collateral. You pay the credit card company the security deposit amount, then get a line of credit equal to whatever the security deposit is.

You can then use the credit card to rebuild your credit over time. Once you no longer need this card, you can close the account and receive your security deposit back. Many secured credit cards are available for those with low credit, making them great for improving credit scores.

Credit builder loans are another smart way to build credit. They are specifically intended to help you build credit rather than to lend you money upfront. Here’s how they work.

Instead of loaning you money outright, the lender will set aside the money into a secured account. You’ll still make payments on your loan even though you can’t access the money. In the meantime, your payments are reported to a credit bureau. This will help you build your credit history and increase your score. At the end of the loan period, you’ll get access to your secured loan money. 

Not only is a credit building loan a great way to up your credit rating, it’s a fantastic way to hone your money-saving muscles. If you're new to Canada, haven't used credit in the past, or are recovering from an insolvency, a credit builder loan can help you rebuild your payment history and positively influence your credit score.

Make New Credit Applications

Keep building up your credit score. Once it’s in a range where you can qualify for certain loans or credit cards, apply for new lines of credit. By making new credit applications, you indicate that you are actively and responsibly searching for credit. So long as a lender or credit card company doesn’t perform a hard credit check, this may improve your credit score by a few points.

What Is Repossession and How Does It Work?

Repossession means that a lender takes ownership of an item or piece of property if the borrower defaults on a loan. In most cases, this term is used for car repossession. 

There are no laws regarding how missed payments can trigger repossession. Some lenders may start the repossession process after just one missed payment. If your vehicle or other property is subject to repossession, a repossession agent or police officer may arrive to take ownership of the property.

How Does Repossession Impact Your Credit Score?

Repossession has a severely negative effect on your credit score. Depending on the lender and credit bureau, it may decrease by at least 50 points. A big drop like that will make it more difficult to qualify for good loans, credit cards with excellent interest rates, and even insurance premiums. Indeed, the lower your credit score, thehigher your car insurance premiums usually are.

How Many Points Will a Repossession Deduct From My Credit Score?

Most repossessions deduct between 50 to 150 points from your credit score. For example, if you have a credit score of 700, repossession of your vehicle could cause its score to drop down to 550. This will seriously impact your ability to get loans or acquire new credit cards, and you’ll likely be faced with higher interest rates for the credit products you are approved for.

How Long Does It Take To Re-establish Credit Following a Repossession?

You can start rebuilding your credit immediately following a repossession. However, the negative weight of the repossession will remain on your credit reports for several months or even years. 

If you follow different credit-building strategies simultaneously, you’ll reestablish your credit more quickly than otherwise.

How Can I Get a Loan with Bad Credit After a Repossession?

Many lenders offer so-called “bad credit” loans. However, be wary of the terms and conditions when accepting these loans. They often come with high-interest rates or APRs, and lots of extra fees, like late fees or origination fees.

Alternatively, you can get loans designed specifically for building credit. These are also available to individuals with bad credit but are not necessarily predatory. In general, it’s a good idea to rebuild your credit before taking out more loans to avoid reducing your score even further. 

How Long Will a Repossession Stay on Your Credit Report?

Most repossessions remain on credit reports for up to seven years. This may impact lenders’ decisions when you apply for important loans like mortgages. It will also prevent your credit score from increasing as it would if you didn’t have any delinquent accounts or repossessions on your report.

Once the seven years are up, the repossession will vanish, along with its effects on your credit score. If you’ve already rebuilt your credit by that point, you can resume borrowing and taking out loans responsibly.

The Bottom Line

It’s more than possible to rebuild your credit score after repossession. By following these steps carefully and keeping an eye on your credit score with Borrowell to make sure it’s moving in the right direction, you’ll start to see your score recover.