Fixing a Derogatory Credit on Your Report
A derogatory credit item is the result of having negative information on your credit report. Negative items like previous delinquency, high balances, or other items show you’re a potential risk if you borrow more money. This negative information is added to your credit report by the creditors you have accounts with or through public records you have on file with the local or state court.
Because your credit score is calculated based on the information in your credit report, derogatory credit items can hurt your credit score. Many credit score providers, like myFICO and Credit Karma, will give you personalized information about the items that are affecting your credit score.
You can combat derogatory credit by working to improve negative items that appear on your credit report and by adding positive information to your credit report.
Types of Derogatory Credit Items
Different derogatory items affect your credit score in different ways—some items are given more importance than others. For example, a single late payment will hurt your credit score, but not as much as bankruptcy, which impacts your credit score almost more than anything else. Multiple derogatory items will also cause your credit score to drop.
These are the types of derogatory credit items that can appear on your credit report:
- Late payments, resulting from credit card and loan payments that are more than 30 days late
- Charge-offs, resulting from debts that have fallen more than 180 days past due and have been written off as uncollectible
- Debt collections, resulting from debts that have been sold or assigned to a third-party debt collector
- Foreclosure, resulting from delinquent mortgage payments
- Repossession, resulting from delinquent auto loan payments
- Debt settlement, resulting from an agreement between you and a creditor to reduce the outstanding balance and cancel the remainder
- Bankruptcy, resulting from the legal process of having your debts discharged in court
Having derogatory credit doesn’t automatically mean your applications will be denied, but you’ll have a harder time getting approved with these items on your credit report. If you’re approved with derogatory credit, you may pay higher interest rates, be required to make a down payment or security deposit, or both.
How Long Will Derogatory Credit Last?
Derogatory credit can follow you around for a long time. Some types of derogatory information–– like a bankruptcy––can remain on your credit report for up to 10 years. Most other derogatory information––late payments and debt collection accounts––will only remain on your credit report for 7 years. Typically, these items will automatically fall off your credit report once they’re past the credit reporting time limit.
Only accurate, timely, and complete information can be included on your credit report. You can dispute an error or outdated derogatory item with the credit bureaus to have it removed from your credit report. In some cases, having negative information removed can increase your credit score, but it depends on the rest of the information on your credit report.
Paying Off Derogatory Credit Items
It can be beneficial to pay off derogatory credit items that remain on your credit report. Your credit score may not go up right away after paying off a negative item, however, most lenders won’t approve a mortgage application if you have unpaid derogatory items on your credit report. Make sure the accounts are valid before sending payment, especially with debt collection accounts.
Paying off a derogatory item doesn’t remove it from your credit report, but your credit report will be updated to show that you’ve paid off the balance.
You may be able to change a derogatory status to show that you’re current by catching up on past due accounts. This is possible with accounts that are several months past due but haven’t been charged-off yet. Check your most recent billing statement or call your creditor to find out the amount you need to pay to get caught up again. In some cases, you may be able to make your minimum payment on time for a few months to bring your account current again.
Tips to Overcome Derogatory Credit
Your credit score benefits from having positive information, so your score may start improving long before the derogatory items are removed from your credit report if you're paying other accounts on time.
Your recent credit history affects your credit more than old derogatory credit items, so having open accounts with on-time payments will help improve your credit score. You may not be able to have excellent credit until the derogatory items are completely removed from your credit report, but with good credit you’ll still be able to qualify for many credit cards and loans.
Experian. "What Derogatory Means on Your Credit Report." Accessed June 29, 2020.
Credit Sesame. "How Does Bankruptcy Affect Your Credit? Top 7 Questions Answered." Accessed June 29, 2020.
Fair Isaac Corporation. "How Credit Actions Hurt FICO Scores." Accessed June 29, 2020.
Federal Trade Commission. "Fair Credit Reporting Act § 605. Requirements Relating to Information Contained in Consumer Reports." Accessed June 29, 2020.
Experian. "Deleting an Account Did Not Raise Credit Score." Accessed June 29, 2020.
TransUnion. "How Long Does it Take for a Credit Report to Update?" Accessed June 29, 2020.
Fair Isaac Corporation. "The 5 Secrets of Excellent Credit Score Individuals." Accessed June 29, 2020.