Derogatory Credit

Derogatory credit refers to missed payments, high balances, foreclosures, bankruptcies, charge-offs, and other negative information on your credit report. Some derogatory marks stay on your credit for years, impacting your credit score long after the negative event occurred.

But don’t lose hope! In this article, we’ll explore what derogatory credit is and how to remove those negative marks from your credit report.

Does “derogatory” mean bad?

When used in reference to your credit report, “derogatory” refers to negative marks that indicate financial mistakes you’ve made. Lenders tend to view derogatory marks as red flags that indicate you’re a higher-risk borrower. As such, these marks can make it harder to be approved for new loans or credit cards.

While derogatory credit can mean multiple things, it usually indicates a late payment, foreclosure, repossession, or bankruptcy, so yes, derogatory marks are bad for your credit score.

Is “derogatory” worse than “delinquent?”

While derogatory and delinquent are both terms that refer to negative marks on your credit report, one is worse than the other. Derogatory typically refers to missed payments or negative information on your account that is more than 180 days late.

Delinquent, on the other hand, refers to negative marks that are less than 180 days late. Delinquent isn't quite as bad as derogatory because there's still time to right the ship. If you resolve the delinquent mark on your account before 180 days, it won't become a derogatory mark.

Derogatory marks are also worse for your credit score because they remain on your account for longer. Depending on what type of mark it is, derogatory credit can remain on your account for seven to 10 years, dragging your score down all the while.

What items on my credit report are considered derogatory?

Here are some things on your credit report that are considered derogatory:

Late payments

Missed payments are the most common derogatory items on credit reports. A payment is considered late if it's more than 30 days past the due date. If a payment is between 30 and 180 days late, it's considered delinquent. Once it's more than 180 days late, it's considered derogatory and is much harder to get off your report.

Charge-offs

A charge-off is the worst-case scenario resulting from a missed payment. Charge-offs happen when a lender realizes that you simply aren't going to repay your debt, so they either report it to a debt collector or close your account. Either way, the charge-off will stay on your permanent record for seven years as a derogatory mark and make it difficult to secure a loan during that time.

Foreclosures

If you own a home or business and can't keep up with your mortgage payments, the bank can foreclose on your property, which means you can no longer live there or inhabit the building. Foreclosures are listed as a derogatory mark on your credit report for seven years and can drop your credit score by up to 100 points!

Bankruptcy filings

If you are unable to pay your debts with seemingly no way out, you might need to file for Chapter 7 or 13 bankruptcy. When this happens, you go to a court of law, and they eliminate your debt by selling your assets. This is a worst-case scenario for borrowers because bankruptcy filings stay on your credit report for seven to 10 years, depending on the type of bankruptcy.

Repossessions

A repossession occurs when you can't pay off a secured loan, and the lender repossesses the property that was used as collateral. For example, if you can’t make your monthly auto loan payments, the lender or debt collector in possession of your car title can take the vehicle without warning. Repossessions can stay on your record for up to seven years and drop your credit score by up to 150 points.

Should I pay off derogatory credit accounts?

Even though paying off a derogatory account will not immediately remove it from your credit report or improve your score, it’s still a good move. Resolving derogatory credit indicates to prospective lenders, landlords, and employers that you’re responsible and have worked hard to repay your debts. There's also a good chance that the derogatory mark will be removed from your credit report earlier than if you didn’t resolve it at all.

In addition to building good faith among lenders, paying off derogatory accounts can keep you out of legal hot water. Depending on how much money you owe, a lender can sue you or sell your account to collections. When this happens, they may be able to take possession of any assets you own as well as withhold future wages until your debt is paid.

Can I remove a derogatory mark from my credit report?

Derogatory marks hurt your credit for a time, but they aren't permanent. If you want to remove a derogatory mark early, here are a few options:

  • If the derogatory mark is a mistake made by your lender, you can contact the lender directly or submit a dispute to the credit bureaus.
  • If you have the money to pay off derogatory credit, negotiate a “pay for delete” with the collection agency.
  • Have a credit repair service dispute derogatory items on your behalf.

Overall, your best bet is to pay off the derogatory credit account at your earliest convenience to minimize the damage.

How do I dispute derogatory marks on my credit report?

If you choose to dispute a derogatory mark, here's how the process works.

Check your credit report for errors

The only way you'll spot inaccurate derogatory marks is if you pull your credit report. You can check your credit report for free at AnnualCreditReport.com. Look for any negative marks or charges that you don't recognize.

Dispute any errors

If you spot any inaccuracies, you can send a letter of dispute to the credit bureau and the lender. In your letter, explain why the derogatory mark is a mistake and request that they delete it.

Provide supporting documentation

To back up your dispute, it's helpful to provide any supporting documents as evidence that the derogatory mark is a mistake.

Don't let derogatory marks ruin your credit

Along with delinquencies, derogatory marks can have a profoundly negative impact on your credit report and FICO credit score. It's important to carefully monitor your credit report so you can dispute any errors, resolve issues, and pay off derogatory credit accounts.

If derogatory credit has impacted your ability to borrow the money you need, we may be able to help. Explore our loan options today.

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