Having a car repossessed can be a traumatic experience resulting in additional financial hardship. On the upside, it can also be a stark reminder that it's time to get back on track with finances. It's not impossible to get a good credit score again after having a car repossessed, but it will take some time, discipline and motivation. Researching ways to improve credit scores after your car is repossessed will help you decide which course of action makes the most sense for your situation.
Repossession
Repossession happens when your secured debt is tied to an asset. Most car financing agreements permit lenders to repossess your car at any time, without notice, once you've begun defaulting on payments, according to the Federal Trade Commission. To get the car back, you may have to pay the entire balance on the loan back, plus the costs of towing and storing the car as part of the repossession process. Borrowers having problems making payments are better off selling the car and using resulting money to pay off the loan, since repossession leaves a dark mark on your credit score.
Pay Loan
If possible, pay off the balance for the car that was repossessed and any fees associated with storage or preparing the car for auction. While this won't remove the repossession event from your credit report, future lenders, landlords or other professionals viewing your credit report will see that you've taken care of the debt. Paying down debt will help you move toward a good credit score.
Additional Loans
Credit scores reflect your ability to handle credit, and one way to build up a credit score is to take out and reliably pay back another loan. Securing a loan can be tough after lenders see that your car was repossessed, but allow some time to pass as you gradually build up better credit by paying credit card bills, student loan payments and other financial obligations on time. After six months of good payment habits, your credit score may rise enough to take out another credit line to purchase another car, if desired. If you can wait two or three years, it'll be less likely that you'll need to take out a loan from a subprime lender, which comes with higher interest rates and fees.
Explain
Contact TransUnion, Equifax and Experian credit reporting agencies and add a short note to your report explaining your side of the repossession. Lenders may take your explanation into consideration when reviewing your report.
Bankruptcy
Far from being a magical bandage to resolve your financial woes, including repossession, bankruptcy is a very serious financial measure considered to be a last resort because of the lasting negative effect it can have on your credit report---up to 10 years, according to the Federal Trade Commission. While declaring bankruptcy can stop repossessions and other punitive measures, it won't help you much after a car has already been repossessed and certainly won't make it easier for you to get a good credit score.
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