What Derogatory Marks on Your Credit Report Mean

A derogatory mark indicates negative credit behavior, which can impact your credit report for seven years or longer. Many different types of derogatory marks can appear on your credit report, each with different criteria regarding its negative impact and how other lenders might view it while making decisions about extending credit.

What is a Derogatory Mark?

Your credit report is a record of your reported credit behavior — both negative and positive. A negative entry on your report, such as a seriously delinquent payment, is considered a derogatory mark. Each derogatory mark you receive can lower your credit score — some more than others.

When lenders view your credit report and see a derogatory mark, they may view you as more of a lending risk. The riskier you appear as a borrower, the more likely it may be that you could receive unfavorable terms, such as high interest and fees. Or you may be denied a financial product altogether.

Types of Derogatory Marks

Here are the different types of derogatory remarks and an explanation of each.

1. Late payment

  • Length of credit impact: Seven years from the first date of delinquency

Payments that are 30 days or more past due on a credit card or loan account are reportable and can result in a derogatory mark on an individual’s credit report.   Each 30-day increment — 60 days, 90 days — that payments are past due can result in a more severe impact to the person’s credit score.

2. Charge-Off

  • Length of credit impact: Seven years from the first date of delinquency

After a borrower misses several payments on an account, a creditor may lose confidence in the borrower’s intent to make payments. As a result, it can declare the debt as a loss, which is known as a charge-off.

3.  Collection

  • Length of credit impact: Seven years from the first date of delinquency

A creditor may decide to sell a charged-off account to a collection agency, which will attempt to get payment from the borrower. Having an account in collections can result in another derogatory mark in addition to the one noted for the charge-off.

4. Foreclosure

  • Length of credit impact: Seven years from the filing date

If a borrower fails to make mortgage payments for a long enough period of time, the bank can seize the home and sell it to pay off the mortgage loan.

5. Repossession

  • Length of credit impact: Seven years from the first date of delinquency

When a borrower misses payments on an auto loan and violates his loan agreement, the lender can repossess the vehicle.

6. Debt Settlement

  • Length of credit impact: Seven years from either the date of the debt settlement or from the date of  the first delinquent payment if missed payments were involved

Settling a debt means that the borrower and creditor have reached an agreement where the borrower pays back only a percentage of the debt owed.

7. Bankruptcy

  • Length of credit impact: Chapter 13 bankruptcies remain on the report for seven years; Chapter 7 bankruptcies remain on the report for 10 years

Bankruptcy is a legal status that grants the debtor partial or total relief from debts owed. 

National Consumer Assistance Plan and Public Records

In response to a settlement with over 30 state attorney’s general, the three big reporting agencies (TransUnion, Equifax, and Experian) agreed to enact a program known as the “National Consumer Assistance Plan (NCAP). The goal of the NCAP is to help increase credit reporting accuracy and ease the dispute process for consumers.

As part of the NCAP, certain items, such as civil judgment records and some tax liens, are no longer included in consumer credit reports. The implementation of the settlement differs between the different reporting agencies, but as of April 2018 most, if not all, of the above-listed information items were removed from consumer reports based on internal reporting criteria. Since the agreement is voluntary, these reporting agencies are currently assessing and updating their criteria for what to include and not include on their reports.

Information regarding civil judgments, which are debts owed through a court, is no longer included on credit reports, either. Unpaid medical debts cannot be added to credit reports until 180 days after the initially reported delinquency.

Plus, any unpaid medical debts that were previously reported and have been or are being paid by insurance must be removed from credit reports. This does not include unpaid medical debts that are your responsibility and insurance doesn’t cover.

How Much Do Derogatory Marks Damage Your Credit Scores?

How much your credit scores will suffer as a result of derogatory marks depends on what type of derogatory mark you receive and how high your credit score is.

For example, derogatory marks that are considered minor, such as 30-day late payment, will likely damage scores less than a more serious derogatory mark, such as bankruptcy. In addition, the higher your credit score, the more impact a derogatory mark typically will have.

Monitoring Your Credit

Keeping tabs on your credit reports and scores can alert you if something changes, such as a derogatory mark appearing on your credit report. If you’re not already using a product to monitor your credit, why not consider ScoreSense?

With ScoreSense, you’ll receive your credit score and credit report information from all three credit reporting agencies, as well as monitoring and alerts to help you stay informed about the status of your credit.

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