Derogatory marks: what are they and how to remove them

Derogatory marks, also known as derogatory credit items, represent negative and sometimes serious aspects of your credit report, including late payments and delinquencies. These marks, coupled with a low credit rating, can make it difficult to get approved for credit or get decent credit terms.

It’s important to know about the different kinds of derogatory marks as they can have a heavy impact on your financial history and your ability to be in good standing with your lenders. Here’s what you need to know about derogatory marks and how they can affect your credit.

What are derogatory marks

Derogatory marks are negative items that indicate you failed to pay a loan or are delinquent on a loan or other debt. They will show up on your credit report and hurt your credit over time. Having a derogatory mark on your credit report is a serious matter, as they show up as a warning to lenders, limiting credit approvals and hurting your credit.

Some derogatory marks are more severe than others. For example, a late payment generally won’t affect your credit as much as a bankruptcy.

 

What are the types of derogatory marks?

 

There are different types of derogatory marks, and each will typically stay on your credit report for seven years. How you acquire these marks depends on the situation. Take a look at the chart below to see how long each mark stays on your credit report.

 

Derogatory marks by level of severity

 

Type: Late Payments

  • Description: Payments that are 30 days past due. 12 months of on-time payments are more important than one missed payment.
  • Approximate on Credit Report: 7 years after the date the delinquency was first reported.

Type: Charge Offs 

  • Description: A late payment that has been sent to collections if there hasn’t been a payment in 180 days.
  • Approximate on Credit Report: 7 years after the date the delinquency was first reported.

Type: Repossession 

  • Description: When your car or other assets are repossessed from the party that has claims on them.
  • Approximate on Credit Report: 7 years after the date the delinquency was first reported.

Type: Foreclosure

  • Description: Unpaid mortgage payments that result in the bank or other lenders taking possession of your home.
  • Approximate on Credit Report: Usually, 7 years after the date of the foreclosure is filed.

Type: Student Loan Delinquency

  • Description: You are delinquent after 90 days if you don’t make a payment, but are considered in default after 270 days. Wages, social security, and tax refunds can be garnished.
  • Approximate on Credit Report: Student loan delinquencies stay on your report for 7 years.

Type: Bankruptcy

  • Description: A legal process where your debts are settled in court. You’ll either pay off some or none of your debt.
  • Approximate on Credit Report: 7-10 years after the filing date, depending on the type of bankruptcy.

Type: Debt Settlement

  • Description: A process where you renegotiate your debts to a lower value in order to avoid bankruptcy. Your credit score is damaged similarly.
  • Approximate on Credit Report: 7 years after the debt was settled.

 

How do derogatory marks affect credit?

 

Derogatory marks can lower your credit score and affect your standing with lenders, making it harder to get approved for loans or good credit terms. The more derogatory marks on your report, the lower your credit score will be and the more of a credit risk you will appear.

Your recent credit history is also a factor in the way derogatory marks affect your credit. For instance, showing you’ve made payments on time over a three year period is more important to lenders than a repossession four years ago.

The reverse is also true as a late payment now will hurt your credit more than one from a few years ago. Thankfully, there are actions you can take to remove a derogatory mark.

How can I remove derogatory marks?

You can remove inaccurate derogatory marks from your credit report by submitting a dispute with your creditor or the credit bureau responsible for reporting the inaccuracy. To remove accurate derogatory marks from your report you can wait for them to expire on their own, or send a goodwill letter requesting your creditor to remove them. Your creditor is not required to remove accurate derogatory marks, but they may if you have a history of making your payments on time.

In either case, accurate or inaccurate, here are steps you can take that may help you remove them from your credit report.



Review your credit

 

The first thing you want to do is review your credit report for any and all derogatory items.

Check to see if there are any marks that are open or closed, and make note of any issues that you may find, such as personal information that is inaccurate and payments you’ve made that aren’t reported.

If you’re wondering how to get a copy of your credit report, the Federal Trade Commission requires each of the three credit bureaus to provide you with a free credit report once every 12 months. (Due to the COVID-19 pandemic, you can now get a free copy of your credit report each week until April 2021.)

 

Submit a dispute

Just like all things in life, mistakes happen, and this can include a mistake on your credit report. If you find any kind of discrepancy in your report, whether it be an incorrect item, the wrong payment date or payments you made that aren’t on the report, file a dispute to have the information corrected.

There are five steps to file a dispute:

 

  • Identify the errors in your credit reports
  • Verify the errors with your creditor
  • Write a dispute letter detailing the discrepancies
  • Allow 30–45 days for investigations
  • Follow up if necessary

 

Hopefully, if the investigation confirms a discrepancy, the derogatory mark should be removed. If it turns out that there wasn’t a mistake, you may just have to wait for it to fall off on its own.

 

Wait for it to fall off

 

If you have a derogatory mark on your credit report, you may have to wait seven to 10 years for it to fall off. Once the time has passed, as explained by the Fair Credit Reporting Act, the items will be expunged from your report.

How can I rebuild my credit after a derogatory mark?

 

Your credit will begin to recover even before the derogatory mark is removed from your report, as negative credit items are less impactful over time. Of course, this is true so long as you’re staying consistent with your payments.

Although there is no quick credit fix, you can begin to rebuild your credit after a derogatory mark by following four rules:

 

  1. Pay every bill on time
  2. Keep credit utilization below 30 percent
  3. Only apply for credit that you need
  4. Get help from credit reapair services 

Being consistent with your payments and using different, but manageable credit lines are also good habits to develop.

Having a derogatory mark on your credit report isn’t the end of the world. Nevertheless, stay proactive by monitoring your credit reports and disputing any discrepancies you come across. And don’t be afraid to get help to repair your credit.