Credit reports track your financial health and they communicate your behaviour as a borrower. Having negative indications on this report can drastically drag down your credit score. These negative items on the credit report are termed as ‘Derogatory Mark’. These marks can affect your ability to be approved for credit and the interest rates that a lender offers you. It may even plague your credit reports for the better part of a decade. Since this term plays a very important role in your credit, it is essential to know everything about it. In this article, we will understand everything about derogatory marks on credit.
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What Is A Derogatory Mark? | What Does Derogatory Mean On A Credit Report
Derogatory marks, also known as derogatory credit items, are negative, long-lasting indications — such as missed payments, collections, repossession and foreclosure — on your credit reports that generally mean you didn’t pay back a loan as agreed. Most derogatory marks stay on your credit reports for a minimum of six years and some may even be present for up to 10 years.
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How Do Derogatory Marks Impact Your Credit Scores? | Derogatory Marks Effects
The derogatory marks on your credit act as red flags to lenders using your credit report to evaluate you. These marks reflect mistakes or events that indicate you have an imperfect payment history. If lenders spot too many of such marks, they might offer you a relatively expensive product or reject your application altogether.
Each derogatory mark will lower your credit score substantially and make you less creditworthy, but some are more serious than others. Additionally, some derogatory marks on credit will affect your credit less as they age. Late payments from this year, for instance, will look worse than one from five years ago.
Read More: What is a Good Credit Score?
Do You Have Derogatory Marks On Credit Report?
You might already have a fair idea that you have derogatory credit. For example, you might be aware that you missed a payment or declared bankruptcy recently.
Or if your application for a credit product was rejected then investigate the reason. It is highly likely that the derogatory marks were the reason. Contact the lender and inquire why you were denied. The lender is required by the law, under the Equal Credit Opportunity Act (ECOA) to tell you the specific reasons why they deemed you non-creditworthy, according to the Consumer Financial Protection Bureau (CFPB).
Many lenders send this information to you as a procedure. If a lender doesn’t, request the same within 60 days of rejection. The reasons can alert you about the derogatory marks on credit.
However, to know for sure if you have derogatory marks, you’ll need to review your credit reports from all three major credit-reporting agencies: Equifax, TransUnion, and Experian.
Types of Derogatory Marks On Credit
Here are the different types of factors that can appear as derogatory marks on your credit report, in order from the least to most severe:
Missed /Late Payments: A late payment can be reported when it’s overdue by more than 30 days. It will experience worse consequences after every 30 days.
Student Loan: Late student loan payments can start to hurt your credit after 30 days for private student loans and 90 days for federal student loans, and those delinquencies stay on your credit report for seven years.
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 derogatory mark on your credit.
Repossessions: If you don’t or cannot pay for an item, such as a car, as agreed, the lender can come and get it, often without warning.
Foreclosures: If you fail to make payments on your home and the bank seizes it, the foreclosure will be reported to the credit bureaus and the mark will stay on your credit reports.
Bankruptcies: If you declared bankruptcy in the past seven to 10 years, this event will be listed on your credit reports. It is the most severe form of derogatory marks on credit.
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How Long Do Derogatory Marks Stay On Credit?
Here’s how long different type of derogatory marks stays on your credit reports:
- Missed payments: 7½ years
- Account charge-off: 7 years
- Repossession: 7 years
- Collections: 7 years
- Student loan delinquency or default: 7 years
- Bankruptcy: 7 years for Chapter 13, 10 years for Chapter 7
- Foreclosure: 7 years
How To Get Derogatory Marks Off Credit
Here are steps you can take if you have derogatory marks on credit reports.
1. Review Your Credit Reports
Your credit reports may show “closed” and “open” derogatory marks. Closed derogatory marks refer to negative items about closed accounts meaning the accounts that have been charged off. An open derogatory mark refers to negative information about an open account, for example, your current credit cards or loans.
2. Dispute Incorrect Derogatory Marks
If you have a derogatory mark on your credit report and you believe it is an error, you can file a dispute. The credit bureaus are required to investigate disputes within 30 days of the filing date.
3. Start Healing Your Credit
Even if the derogatory mark is legitimate, there are multiple ways to start improving your credit. Make payments on any accounts that are past due, and then consistently make the minimum payment on time. Try and keep your account balances low and only apply for new credit that you unavoidably need.
4. Wait For The Mark To Fall Off Your Reports
Sometimes all you can do is wait. As time passes, derogatory marks don’t seem that harmful.
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In A Nutshell | Derogatory Marks On Credit
If you’ve experienced a financial misfortune in the past, from late bills to bankruptcy, that negative information can appear on your credit reports and it is known as a “Derogatory Mark.” It may stay on the report for several years but there are a few ways in which you can address it: dispute the mark if at all it’s an error, start healing your credit by taking efforts or wait out the clock.
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