Trying to read a credit report can feel like trying to decipher a recipe with ingredients and techniques you’ve never heard of. However, working through the confusing document is important because you need to understand the recipe behind your credit score.
For instance, you might see the word “derogatory.” What does “derogatory” mean on a credit report? Simply put, it means you have a negative event listed on your credit report that could lower your credit score. A single late payment can drop your credit score by 60 to 100 points, according to Equifax.
If you have derogatory credit marks, being aware of them can help you fix them and improve your credit. Here’s everything you need to know about derogatory credit marks on your report.
What is derogatory credit?
A credit report is a history of your behavior as a borrower — the good and the bad. When negative information shows up on your credit report, it’s called a derogatory mark.
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, but some are more serious than others. Additionally, some derogatory marks will affect your credit less as they age. A late payment from this year, for instance, will look worse than one from five years ago.
Do I have derogatory marks on my credit report?
You might already have some idea that you have derogatory credit. For instance, you might be aware that you missed a payment or declared bankruptcy recently.
Or perhaps you applied for a credit product or loan and were rejected. If so, don’t let it slide. Contact the lender and ask why you were denied. The lender is required under the Equal Credit Opportunity Act to tell you the specific reasons it considered you non-creditworthy, according to the Consumer Financial Protection Bureau (CFPB).
Many lenders will send this information to you as a matter of course. If a lender doesn’t, request it within 60 days of rejection. The reasons can alert you to potentially derogatory marks on your credit.
To know for sure if you have derogatory credit, however, you’ll need to review your credit reports from all three major credit reporting agencies: Equifax, TransUnion and Experian.
Request free copies of your credit reports on AnnualCreditReport.com, the only website for free credit reports authorized by the Federal Trade Commision (FTC).
Once you get your free annual credit reports, review them for derogatory marks. You might find a summary of derogatory credit marks. Equifax, for example, has a section listing “negative information” on its credit reports. Other credit reports might list derogatory marks next to the relevant accounts.
Check both places for derogatory marks and compare credit reports to ensure the information matches up.
Types of derogatory marks
When you’re checking your credit report for negative information, it helps to know what to look for.
Here are some types of derogatory marks that can end up on your credit report, in order from the least to most severe:
- Late payments: A late payment can be reported when it’s overdue by more than 30 days, and it will experience an uptick in severity every 30 days.
- Loan and credit defaults: For installment loans such as mortgages, auto loans, or student debt, your loan might be listed as in default. When your loan defaults depends on your account agreement, but it’s typically after 120 to 180 days of nonpayment.
- Debts sent to collections: After an account is overdue by 120 days, it might be sold to a collection agency, which can put a new derogatory mark on your credit.
- Foreclosures or repossessions: If a mortgage lender foreclosed on a home you owned or you had a vehicle repossessed, those situations usually are listed as derogatory marks.
- Bankruptcies: If you declared bankruptcy in the past seven to 10 years, this event will be listed on your credit reports.
- Tax liens: A tax lien goes on your credit report when you don’t pay taxes and the government places a lien on your property.
- Civil judgments: Any lawsuit brought against you that resulted in you owing debt to a plaintiff can be listed on your credit report.
Can you get derogatory credit marks removed?
If you find derogatory marks on your credit report, it can feel like those reminders of past mistakes, hardships, or failures will never go away. They’re out there for lenders to see, and they continue to drag your credit score down.
Most negative information falls off your report after 7 years
The good news is, like all things, bad credit will get better and improve with time — as long as you prevent further missteps or derogatory marks.
Credit reporting agencies are required to remove most derogatory items from your credit history after seven years, including late payments, defaults, collections and foreclosures. Bankruptcies, however, can be listed on your report for up to 10 years.
A credit reporting agency might miss an old derogatory mark due for removal, however. You might be able to petition for this information to be excluded from your credit report.
Dispute credit report errors
Sometimes, negative information or derogatory marks end up on your credit report because of a mistake. It can be as simple as your credit card company misreporting your payment as late when it wasn’t. Or the credit reporting agency might mistakenly list someone else’s bankruptcy on your report.
If you see something that looks unfamiliar on your credit report, it’s worth investigating. Errors are pretty common; 21 percent of consumers say they’ve found inaccurate information on their reports, according to a Credit.com survey.
On the other hand, it might be a legitimate debt you lost track of or even a library charge sent to collections.
Take some time to review the information. You have the right to dispute credit report errors. You can provide your own documentation to credit reporting agencies or lenders to set the record straight.
The credit agency will have 30 days to investigate the disputed information and verify its accuracy. If the information is erroneous, it will be corrected on all three credit reports.
Find other ways to improve your credit score
Maybe you have a derogatory mark that’s legitimate but dragging your credit score down. If you can’t fix the derogatory mark, look for other ways to improve your credit score:
- Work to resolve outstanding debt problems. If you have a debt in collections or are behind on payments, try to quickly resolve those issues by negotiating a settlement or payment plan. The longer the issues go unaddressed, the more severe the derogatory marks will be.
- Make payments on time, every time. You’ll build a positive payment history with each month that passes and start to counterbalance negative marks.
- Pay down high credit card balances. One factor that affects your credit score is your credit utilization ratio — or how high your credit card or line of credit balance is compared to your credit limit. The lower, the better, so if you make extra payments to lower your balance, it could give your credit score a boost.
- Open a secured credit card. A derogatory mark will lower your credit score and make it harder to qualify for a credit card. However, you could qualify for a secured credit card. You put down a cash deposit on the card and get a tool to build a positive payment history and improve your credit.
Dealing with derogatory credit can be discouraging. It might take time and patience to see progress. But by learning more about your credit score, you’re taking steps in the right direction. Keep building on it, and hopefully your derogatory credit and mistakes will soon be in the past.
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
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