In a NutshellIf you’ve experienced financial misfortune, from late bills to bankruptcy, that negative information can appear on your credit reports as a “derogatory mark.” It may stay there for several years, but there are a few ways you can address it: dispute the mark if it’s an error, start healing your credit or wait out the clock.
A derogatory mark may plague your credit reports for the better part of a decade, but there are still ways you can work to improve your credit.
Derogatory marks are negative, long-lasting indications on your credit reports that generally mean you didn’t pay back a loan as agreed. For example, a late payment or bankruptcy appears on your reports as a derogatory mark. These derogatory marks generally stay on your credit reports for up to 7 or 10 years (sometimes even longer) and damage your scores.
If you have a lower score coupled with a derogatory mark, you may have a hard time getting approved for credit or may get less-than-ideal credit terms. But the good news is that the impact to your credit of all derogatory marks decreases over time.
A derogatory mark can land on your credit reports in two ways. A creditor or lender may report negative information to the credit bureaus, which is then translated into a derogatory mark. Or the credit bureaus can add public records to your credit reports. These may include bankruptcies, civil judgments and tax liens.
However, thanks to stronger public-record data standards that the credit bureaus have recently agreed to, consumers nationwide will see fewer tax liens and civil judgments on their credit reports.
- How do derogatory marks impact my scores?
- What leads to a derogatory mark?
- How long can a derogatory mark impact my credit scores?
- How to deal with derogatory marks
How do derogatory marks impact my scores?
A derogatory mark will damage your credit scores. But how much? That depends on a few factors.
A derogatory mark typically affect a higher score more than it will a lower score. Also, a minor derogatory mark, which can be caused by a late payment, generally damages your scores less than a major derogatory mark, which can be caused by something like a foreclosure.
The amount of time a derogatory mark stays on your credit reports depends on what type of mark it is. The chart below covers the different types of derogatory marks and how long they will likely remain on your credit scores.
What leads to a derogatory mark?
Here are the financial events that can lead to a derogatory mark and how long it might stay on your credit report.
|What can lead to a derogatory mark?||What is it and what happens?||How long might the derogatory mark appear on a credit report?|
|Late payments||An account payment that is past due. This is generally the only form of a “minor” derogatory mark. After the payment is late, its severity may increase every 30 days it’s not paid.||Seven years from the date of a delinquent payment.|
|An account in collections (or charge-off)||When a creditor thinks you ultimately won’t pay what you owe, usually after several missed payments, it can write or “charge off” the account for tax purposes. After a creditor has charged off the account, it can sell it to a third-party collections agency. The collections company will try to get a payment from the borrower.||Seven years from the first date of a delinquent payment.|
|Bankruptcy||This is a special legal proceeding you can enter to request relief from debt obligations. You’ll either pay back some or none of your debt.||7 to 10 years from the filing date, depending on the type of bankruptcy.|
|Civil judgment||If you’ve lost a civil lawsuit that requires you to pay debt or damages, it can appear on your credit reports.||
Paid civil judgment: Seven years from the date the judgment was filed.
Unpaid civil judgment: The seven-year time frame may be renewed depending on local laws.
|Debt settlement||You and a creditor can reach an agreement where you pay back only part of the debt you owe.||Seven years from either the date the debt was settled or from the date of the first delinquent payment, depending on whether there were missed payments.|
|Foreclosure||A foreclosure can happen if you fall seriously behind or miss many of your mortgage payments. The bank will attempt to force a sale of the home, which is then used as collateral for the mortgage loan.||Seven years from the filing date.|
|Tax lien||If you fail to pay your taxes, the federal government will attempt to collect your debt by placing a lien, which is a claim, against your property.||
Paid tax lien: Seven years from the filing date.
Unpaid tax lien: Can remain on a report indefinitely.
How long can a derogatory mark impact my credit scores?
Derogatory marks can remain on your credit for up to seven to 10 years or more, depending on what type it is. However, your scores can start improving before that if you take steps to make your credit healthy over time. That can include making at least the minimum payment on time and keeping your balances low.
How to deal with derogatory marks
You can’t deal with a derogatory mark if you don’t know about it, so Bruce McClary, spokesman at the National Foundation for Credit Counseling, recommends checking your credit reports at least once a month. Having a Credit Karma account can help you notice and dispute incorrect derogatory marks and generally keep tabs on your Equifax and TransUnion credit reports for free.
Here are steps you can take if you have a derogatory mark on your 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, such as those in collections, including accounts that have been charged off. An open derogatory mark refers to negative information about an open account, such as your current credit cards or loans.
Make sure all of the information on the reports is accurate, including your personal information, open and closed accounts, and negative information. Check for delinquent payments under all your accounts, and then look for public records and accounts in collections.
2. Dispute incorrect derogatory marks
If you have a derogatory mark on your TransUnion credit report and it’s an error, you can file a dispute using Credit Karma’s free Direct Dispute™ tool. The credit bureaus are required to investigate disputes related to trade lines within 30 days of the filing date.
3. Start healing your credit
Even if the derogatory mark is legitimate, you can start improving your credit. Make payments on any accounts that are past-due, and then consistently make the minimum payment on time. Keep your account balances low and only apply for new credit that you need.
And think twice before you ignore the problem. In some cases, such as with tax liens, ignoring the debt can lead to more problems, like wage garnishment — so it’s important to address your debt.
4. Wait for the mark to fall off your reports
Sometimes all you can do is wait. Fortunately, about two years after a derogatory mark appears on your reports, your credit should start rebounding — if you’re taking the right steps toward healthy credit. If you’re working on building credit, you may consider getting a secured credit card, which is made specifically to help people with that process.
If you have a derogatory mark on your credit reports, it will remain there for several years and can damage your scores. But you can be proactive about making healthy credit moves.
“Improving your credit is like losing weight,” says Freddie Huynh, vice president of credit risk at Freedom Financial Asset Management. “There’s no magic pill. It takes time.”
Check your credit reports regularly, question and dispute errors on the reports, start rebuilding your credit and then let time take care of those derogatory marks.