If you’ve ever applied for credit and been denied, you likely received a written explanation in the mail detailing the reasons for the denial. Depending on your credit history, the explanation might include something about a derogatory public record.
A derogatory public record is a type of negative item on your credit report, namely a debt or debts that you owe, which you have not paid as agreed. Derogatory public records can affect your approval for loans, credit cards or other financial products or services that require a solid credit history and score.
Derogatory Public Records Explained
Derogatory public records are different from other derogatory items, such as collections, because they only relate to matters of public record, like a tax lien.
In the past, derogatory public records in the form of bankruptcies, civil court judgments and tax liens could all appear on credit reports. However, people who shared the same first and last name with someone else who had a tax lien or civil judgment might have had that person’s credit file linked to their credit file in error.
To help increase the accuracy of consumer credit reports, the National Consumer Assistance Plan (NCAP) — an agreement reached between Equifax, Experian and TransUnion and 30 state attorney generals in 2015 — stated that all tax liens and civil court judgments that didn’t meet the NCAP’s criteria should be removed from consumer credit reports.
Here’s a breakdown of the criteria:
- Your name and address, as well as your Social Security number or date of birth, must be included on the public record.
- The provider of the public information must visit the courthouse that houses the records at least every 90 days to gather any newly filed or updated public records to ensure it is reporting the most current information.
If the provider found that any tax liens or civil judgments didn’t meet NCAP requirements during a records check, the information could not appear on the consumer’s credit report. Bankruptcies were not affected by these requirements because they are required to include consumer identification data, such as a Social Security number.
What Derogatory Public Records Appear on Credit Reports?
In 2017, the three credit bureaus decided to remove all civil court judgments from consumer credit reports. And by April 2018, all tax liens that fit the criteria for exemption outlined in the NCAP had been removed. Some reporting agencies have different criteria, however; TransUnion has stated that as criteria are revised, public records like tax liens could once again appear on their reports after January 2020.
Now, depending on the record and the reporting agency, bankruptcy is the primary derogatory public record listed on credit reports.
A bankruptcy is considered derogatory because people file it when they are not able to pay their creditors at all or in full. This type of filing is considered a public record because the information is available to any entity or organization the court system provides bankruptcy filings to.
The two types of bankruptcy that usually appear on consumer credit reports are Chapter 13 and Chapter 7. Chapter 13 bankruptcy involves a plan to repay a portion of the debts that you owe. When filing a Chapter 7 bankruptcy, however, you are not required to pay back any of your debt.
What Is the Impact of a Derogatory Public Record?
The impact of a derogatory public record, such as bankruptcy, depends on the type of bankruptcy filed. A Chapter 13 bankruptcy can last up to five years and remains on your credit report for seven years from the date of filing. Although a Chapter 7 bankruptcy is often discharged a few months after the date of filing, it remains on your credit report three years longer than a Chapter 13 bankruptcy — for a total of 10 years.
Lower credit scores accompanied by a derogatory public record can make it difficult to get credit approval. If you do get approved, the interest rate you’re offered may be extremely high. Fortunately, with responsible credit behavior, the impact of a derogatory public record can decrease over time, even before the 7 to 10-year threshold occurs.
Monitoring Your Credit is Important
Your credit reports and scores can affect your ability to be approved for loans, credit cards or even renting an apartment. It’s important to monitor your credit so that you can be aware of the changes that occur.
A product, such as ScoreSense, can help keep you informed of what’s going on with your credit by supplying you with credit reports and scores from each of the three credit bureaus, as well as daily monitoring and monthly updates. If you haven’t signed up for credit monitoring from ScoreSense yet, why not now?