Derogatory Marks on Credit Report – Steps You Can Take Now

What Does “Derogatory Marks on Credit Report” Mean?

derogatory marksIf you’ve experienced financial misfortune, from late bills to bankruptcy, that negative information can appear on your credit reports as derogatory marks. It may stay there for several years, but there are a few ways you can address it.  You can dispute the mark if it’s an error, take steps to improve your credit, or wait out the clock.

Derogatory Marks can Follow you for a Long Time

A derogatory public record or collection filed can impact your credit report for the better part of a decade.  But, there are still ways you can work to improve your credit. Derogatory marks are negative, long-lasting indications on your credit report that generally mean you didn’t pay back a loan as agreed. For example, bankruptcy or late payment will appear on your report as a derogatory mark. These derogatory marks generally stay on your credit reports for up to 7 or 10 years.  Sometimes, even longer and damaging your scores while they show.  If you have a lower score coupled with derogatory marks, you may have a hard time getting approved for credit.  Or, you may get less-than-ideal credit terms. But the good news is that the impact on your credit of all derogatory marks decreases over time.

How long can derogatory marks impact my credit scores?

Derogatory marks can remain on your credit for up to seven to 10 years or more, depending on how serious. However, your scores can start improving before that if you take steps to improve your credit health. It can start with making at least the minimum payment on time and keeping your balances low.

A derogatory mark can land on your credit reports in two ways. A creditor or lender may report negative information to the credit bureaus.  This is then translated into a derogatory mark. Or, the credit bureaus can add public records to your credit reports. These may include bankruptcies, civil judgments, and tax liens.  However, there are stronger public-record data standards that the credit bureaus have recently agreed to.  As a result, consumers nationwide will see fewer tax liens and civil judgments on their credit reports.

How much do derogatory marks impact my scores?

Derogatory marks will damage your credit scores. But how much depends on a few factors.  A derogatory mark typically affects a higher score more than it will a lower score. Also, a minor derogatory mark generally damages your scores less than a major derogatory mark, For example, a late payment will cause less damage than something like a foreclosure or bankruptcy.  The amount of time a derogatory mark stays on your credit reports depends on what type of mark it is. 

Derogatory Marks on Credit Report

Most commonly, the term derogatory refers to accounts that are 60 or 90 days past due or more. These derogatory credit marks act as red flags to lenders using your credit report to evaluate you.  Derogatory marks are meant to reflect mistakes or events that show you have an imperfect payment history. If lenders see too many, they might offer you a more expensive product or reject your application altogether.  Each derogatory mark will lower your credit score and make you less creditworthy.  Obviously, some offenses are more serious than others. Additionally, some derogatory marks will affect your credit less as they age. For example, a recent late payment will look worse than one from five years ago.

Types of Derogatory Marks

Here are the financial events that can lead to a derogatory mark and how long it might stay on your credit report.

Late payments

An account payment that is past due is generally the only form of a “minor” derogatory mark. After the payment is late, the severity will likely increase every 30 days that it’s not paid. Typically creditors report an account as delinquent to credit bureaus 30 days after the missed due date.  There are multiple levels of delinquency that may be reported on your credit report and negatively affect your credit scores. Debt can be reported as 30, 60, 90, and then 120 days late. Multiple delinquencies or a longer period of delinquency can affect your credit scores more negatively. You can expect that a  late payment will be listed up to seven years from the date of a delinquent payment.

An account that was charged-off

When a creditor thinks you ultimately won’t pay what you owe, it can write or charge off the account for tax purposes. The creditor will write the account off as a loss, which usually occurs after you miss several payments in a row.  Once a creditor has charged off the account, it can sell it to a third-party collections agency. The collections company will then try to get a payment from the borrower.  The missed payments alone can significantly lower credit scores.  Charging off the account does even further damage.  A charged-off account is considered a derogatory mark and will further lower credit scores.  A charged-off account will stay on your credit report for seven years from the first date of a delinquent payment.

An account that is in collections

Different creditors or lenders have different policies and use different terminology.  But, typically after 180 days of non-payment the original company owed will write off a debt as a loss.  They will then sell it to a collection agency to collect the money owed. The collection agency will report the current balance owed.  The balance may be higher on the collection account due to any interest and fees added by the collection agency. An account reported as being in collection can cause credit scores to drop substantially.

Bankruptcy

Bankruptcy is a special legal proceeding you can enter into voluntarily to request relief from debt obligations. Depending on the type of bankruptcy you file for and the outcome of the proceeding, you’ll either pay back only a portion or none of your debt.  A bankruptcy stays on your credit record for 7 to 10 years from the filing date, depending on the type of bankruptcy.

Civil judgment

A civil judgment is when you’ve lost a civil lawsuit that requires you to pay debt or damages.  If you’ve lost a civil lawsuit that requires you to pay debt or damages, it can appear on your credit reports.  A Paid civil judgment will show for seven years from the date the judgment was filed.  An Unpaid civil judgment will remain for the seven-year time frame and may be renewed depending on local laws.

Debt settlement

Debt settlement is a negotiated agreement in which a lender accepts less than the full amount owed to legally settle a debt.  You and a creditor can reach an agreement where you pay back only part of the debt you owe.  The percentage of a debt typically accepted in a settlement is 30% to 80%. This percentage fluctuates due to the debt holder’s financial situation and cash on hand, the age of the debt, and the creditor in question.  A debt settlement will remain on your credit record for seven years.  Either from the date the debt was settled or from the date of the first delinquent payment.  Of course, this depends on whether there were missed payments.

Foreclosure

A foreclosure can happen if you fall seriously behind or miss many of your mortgage payments. In a foreclosure, the lender attempts to take back the property through legal means.  The bank will then force a sale of the home, which is used as collateral for the mortgage loan.  The process differs state by state, but the lender is always required to provide you notice.  A foreclosure can cause significant harm to your credit scores.  A foreclosure will remain on your credit report for seven years from the filing date.

Tax lien 

If you fail to pay your taxes, the federal government will attempt to collect your debt by placing a lien, which is a claim, against your property. Once you satisfy your back tax bill, a paid tax lien will show on your records for seven years from the filing date.  An unpaid tax lien can remain on your report indefinitely.

How to deal with Derogatory Marks

You can’t deal with a derogatory mark if you don’t know about it.  A spokesman at the National Foundation for Credit Counseling recommends checking your credit reports at least once a month. There are steps you can take if you have a derogatory mark on your credit reports.

Review your credit reports

The first step to fixing a derogatory mark on your credit report is simply knowing when one exists. Without knowing, you may apply for a loan only to be surprised by your credit score and the maximum loan for which you can qualify.  That’s why it’s important to check your credit regularly.  The three credit reporting agencies — TransUnion, Equifax, and Experian — provide one free credit report per year. The sooner you are aware of it, the sooner you can work towards getting it removed. 

Your credit reports may show closed-derogatory marks and open-derogatory marks. Closed-derogatory marks refer to negative items about closed accounts, such as those in collections, including accounts that have been charged-off.  Open-derogatory marks refer to negative information about an open account, such as your current credit cards or loans. Make sure all of the information on the reports is accurate, including your personal information, open and closed accounts, and negative information. Check for delinquent payments under all your accounts, and then look for public records and accounts in collections.

Dispute incorrect derogatory marks

If you have a derogatory mark on your credit report and it’s an error, you can file a dispute. The credit bureaus are required to investigate disputes related to trade lines within 30 days of the filing date. According to the Federal Trade Commission, one in five people has an error on at least one credit report.  Again, this is why it’s so critical to check your credit report routinely.  If there is an error, you can file a dispute with the creditor by either mail or online.

Pay Off Derogatory Credit Items 

It can be beneficial to pay off derogatory credit items that remain on your credit report. Be aware that your credit score may not go up right away after paying off a negative item.  However, most lenders won’t approve a mortgage application if you have unpaid derogatory items on your credit report. Make sure the accounts are valid before sending payment, especially with debt collection accounts.  Paying off a derogatory item doesn’t remove it from your credit report, but your credit report will be updated to show that you’ve paid off the balance.

The sooner you act, the better.  You may be able to change a derogatory status to show that you’re current by catching up on past due accounts. This is possible with accounts that are several months past due but haven’t been charged-off yet.  Check your most recent billing statement or call your creditor to find out the amount you need to pay to get caught up again. In some cases, you may be able to make your minimum payment on time for a few months to bring your account current again.

Start healing your credit

Even if the derogatory mark is legitimate, you can start improving your credit. Make payments on any accounts that are past-due, and then consistently make the minimum payment on time. Keep your account balances low and only apply for new credit that you need.  And think twice before you ignore the problem. In some cases, ignoring debt can lead to more problems.  For example, tax liens can fester and eventually result in wage garnishment.  So, it’s still important to address your past-due debt.

Wait for the mark to fall off your reports

Sometimes all you can do is wait. Fortunately, about two years after a derogatory mark appears on your reports, your credit should start rebounding.  Especially if you’re taking the right steps to improve your credit. If you’re working on building credit, you may consider getting a secured credit card.  These are available specifically to help people with low credit scores to build a more positive credit history.

How Long Will Derogatory Marks on Your Credit Last? 

Derogatory marks on your credit can follow you around for a long time. Some types of derogatory information can remain on your credit report for up to 10 years. Bankruptcy, for example, can follow you for a decade or more.  Most other derogatory information, like late payments and debt collection accounts, will only remain on your credit report for 7 years. Typically, these items will automatically fall off your credit report once they’re past the credit reporting time limit.  Only accurate, timely, and complete information can be included on your credit report. You can dispute an error or outdated derogatory item with the credit bureaus to have it removed from your credit report. In some cases, having negative information removed can increase your credit score, but it depends on the rest of the information on your credit report.

How to Rebuild

The good news is, making even a little progress to improve your credit standing can give you better financial options.  Begin to restore your credit by following these tips:

  • Make all payments on time. Payments have the biggest influence on credit scores, so always pay at least the minimum by the due date.
  • Try to keep credit card balances below 30% of the credit limit. The second-biggest influence on your score is something called credit utilization.  It looks into how much of your available credit you use.
  • Look into credit-building tools.  Things like a secured credit card or share-backed loan.  Maybe become an authorized user on the credit card of someone with good credit.  Or, get credit in your own name with a co-signer.

Your credit score benefits from having positive information.  So, your score may start improving long before the derogatory items are removed from your credit report.  Of course, be sure that you’re paying all your other accounts on time.

Bottom line

If you have derogatory marks on your credit reports, they will remain there for several years and can damage your scores. But you can be proactive about making healthy credit moves.  Start by checking your credit reports regularly, then question and dispute errors on the reports.  Immediately begin building your credit, and then let time take care of those derogatory marks.

Remember, your recent credit history affects your credit more than old derogatory credit items.  So having open accounts with on-time payments will help improve your credit score. You may not be able to have excellent credit until the derogatory items are completely removed from your credit report.  But with good credit, you’ll still be able to qualify for many credit cards and loans.

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