Let’s get this out of the way first. Any credit you get approved for after a car repossession will have higher rates and less favorable terms.
That’s because repossession typically involves several negative marks on your credit reports that can remain up to 7 years.
But it’s best to begin rebuilding credit immediately after a car repo and here is how:
7 Ways to Rebuild Credit After Car Repossession
1. Pay all current credit obligations on time
Every mortgage or rent payment, every credit card, every loan payment and even utility and cell phone bill needs to be paid on time or before it is due for the next 2 years.
Payment history is the biggest single factor determining your credit score. If you can’t pay in full at least make the minimum due on-time.
2. Monitor your credit reports regularly
Repossession involves several negative marks on your credit reports. Weekly free credit reports are available from Experian, Equifax and Transunion. Factually dispute inaccurate information such as amounts or dates surrounding the repossessed car and request it be deleted.
If you have reinstated your loan and making timely payments, ask your lender for a goodwill adjustment to remove the repo derogatory marks. Make sure your goodwill letter goes to a higher up in the company.
3. Pay off the deficiency balance
After repossession, you might still owe money on the car loan. This is the deficiency balance. Paying it off, or negotiating a settlement, can lessen the negative impact on your credit.
4. Open an unsecured credit card
Unsecured credit cards don’t require a security deposit and the credit limit is based on your creditworthiness, income, and other factors. Unsecured cards are more difficult to open unless it’s an easy to qualify for unsecured card designed for less than perfect credit scores.
Use a small portion of your available credit. Experts say to keep it below 30%. But really 10% is optimum for the best credit scores.
4. Open a secured credit card
These cards require a security deposit, which typically becomes your credit limit. Use the card responsibly and make on-time payments to build positive credit. Some secured credit cards will graduate to unsecured after good credit management.
The same utilization percentages apply when when using secured credit cards. Your goal is to get the best credit scores possible and using less of your available credit is a proven strategy.
6. Consider a credit builder account-
Credit builder accounts are designed to help people improve their credit. You make regular payments, and the lender reports your activity to the credit bureaus.
7. Get credit for rent and utility payments
Services like Experian Boost and Rent Reporters can help you get credit for on-time rent and utility payments, which are often not reported to credit bureaus.
How long after a car repossession to finance another car
There’s no hard and fast rule about how long you have to wait after a car repossession to finance another car. However, here’s a general timeline and factors that influence it:
General Timeline:
- Immediately: You can technically buy a car with cash right away.
- Within 1 year: It’s generally difficult to get financing from traditional lenders (banks, credit unions) within a year of a repossession.
- 1-2 years: Some subprime lenders may consider you during this period, but expect higher interest rates and less favorable terms.
- 2+ years: As the repossession ages and you rebuild your credit, your chances of securing financing with better terms improve.
Factors that Influence the Waiting Time:
- Severity of the repossession: A recent repossession has a greater negative impact than an older one.
- Your credit score: A higher credit score demonstrates creditworthiness and increases your chances of approval.
- Your income and employment history: Lenders want to see stability and the ability to repay the loan.
- Your debt-to-income ratio: A lower DTI indicates you have more disposable income to handle a car payment.
- The lender’s policies: Each lender has its own criteria for approving auto loans.
- Type of lender: Subprime lenders are more likely to work with borrowers with recent repossessions, but at a higher cost.
Tips for Financing Sooner:
- Save for a larger down payment: This shows commitment and reduces the lender’s risk. Put your cash into a high-yield savings account to earn the best compound interest.
- Find a co-signer with good credit: This can improve your chances of approval and potentially get you better terms.
Final thoughts
Stay away from “buy here, pay here” dealerships that offer in-house financing. The interest rates are astronomical and you may end up with another car repossession.
Rebuilding your credit after a repossession takes time and effort. By focusing on improving your credit score and demonstrating financial responsibility, you can increase your chances of getting approved for auto financing sooner.
