Do Repossession and Voluntary Surrender Appear on a Credit Report?

Quick Answer

Derogatory accounts show up on your credit report for seven years after you miss a payment, the account is charged off or it’s sold to collections. Paying off a derogatory account can help improve your credit and show a “paid” status on your credit report.

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Dear Experian,

How long does a derogatory closure of an account pertaining to an auto loan affect your credit scores?

- EST

Dear EST,

A "derogatory closure" of an auto loan account most likely refers to an account status that indicates the vehicle was repossessed or voluntarily surrendered.

An account that shows it was charged off as a loss or sold to collections would also be considered derogatory. As long as the account remains on your report, it will be included when the credit scoring models calculate your credit scores. However, the further in the past the account was closed, the less of an effect it will have on lending decisions.

If the account in question is closed due to charge-off, repossession or voluntary surrender, it will remain part of your credit report for seven years from the original missed payment that led up to that derogatory status. That date is referred to as the original delinquency date. The account will be automatically deleted after seven years and will no longer affect your credit scores.

What if You Still Owe a Balance on Your Car Loan?

If your vehicle is repossessed or voluntarily surrendered, the lender will sell it to recoup as much of the balance owed as possible. If there is still a balance remaining after the sale and you don't pay it, it could be turned over to a collection agency.

Once the account is purchased by a collection agency, that collection account may appear on your credit report in addition to the original account.

Collection accounts are treated as a continuation of the original account and will also be deleted seven years from the original delinquency date that led up to the vehicle being voluntarily surrendered or repossessed.

Will Paying Off a Derogatory Account Help My Credit?

Paying off a derogatory account, such as an account that shows a status of repossession, foreclosure or charge off, will result in that debt being updated to show as "paid" on your credit report. The exception would be if the account has already been sold to a collection company.

In that case, the original account will still show the derogatory payment history, but will indicate that it has been transferred or sold to another company, and the payment would need to be made to the company that now owns the debt. If the collection account appears separately on your report, that account will then be updated to show it has been paid.

Although paying a debt will not automatically remove it from your credit history, a debt that has been paid might help your credit history recover a bit more quickly over time.

Lenders may also view a paid account more favorably than an unpaid one, which could help you qualify for new credit somewhat sooner than if the debt is left unpaid. For instance, when buying a home, most mortgage lenders will require that any past-due accounts be paid off or settled in full before they will consider approving you for a loan.

If the account was sold to collections, paying off the collection account could improve your credit scores right away. That's because many of the newer credit scoring models now exclude collection accounts from the score calculations once they have been paid in full.

Rehabilitating Your Credit History

If you have a derogatory account on your credit history and want to begin rebuilding your credit, there are several steps you can take. The first, as discussed, is to pay off any balance still outstanding after the sale of the vehicle. Other ways to begin improving your scores:

  • Bring any other outstanding accounts current. If you have any other past-due accounts on your credit report, you'll want to bring those accounts current as soon as possible.
  • Make all future payments on time. Your payment history is the most important factor in your credit scores, so be sure not to miss any payments going forward.
  • Reduce credit card balances. Your utilization rate, also called your balance-to-limit ratio, is the second most important factor in your credit scores. Paying down high credit card balances and keeping your utilization rate as low as possible is good for scores.
  • Get your credit score. Order your free credit score from Experian and take a look at the risk factors that are included with the score. These risk factors tell you what specific changes you can make to your credit history to begin helping your scores increase.
  • Add positive payments with Experian Boost . With this free service, you can start getting credit for your on-time utility, cellphone and streaming service payments and boost your credit scores right away.

Thanks for asking.

Jennifer White, Consumer Education Specialist

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