Your credit consists of a few factors, including your payment history, the age of your accounts and the amount of money you owe. Unfortunately, derogatory marks can drag down your credit score, and it can take time and effort to build it back up.
Derogatory marks, by the way, are negative events listed on your credit report that can lower your credit score. If you have this negative information, being aware of it can help you fix these marks and improve your credit.
To cover what we feel you need to know about derogatory credit marks on your report, let’s answer the following four questions:
- What is derogatory credit?
- Do I have derogatory marks on my credit report?
- What types of derogatory marks are there?
- How can you get derogatory credit marks removed?
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.
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 (ECOA) to tell you the specific reasons it deemed 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 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 Commission (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.
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: Once an account is overdue by a certain number of 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.
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.
Here are three things to know about getting derogatory credit marks removed from your report:
- Most negative information falls off your report after 7 years
- You can dispute credit report errors
- There are other ways to improve your credit score
The good news is, 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.
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, as it could be an error. 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 usually has 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.
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. Along with removing derogatory marks, here are other steps you can take to improve your credit.
Rebecca Safier contributed to this story.