What Is A Derogatory Mark On Your Credit Report?

Even if you’re careful with your finances, sometimes a mistake or unexpected circumstances can lead to a negative mark on your credit report. A missed payment, a medical bill sent to collections or even a billing error can create a derogatory mark that lingers for years.

These marks signal to lenders that you may be a higher credit risk, making it harder to qualify for loans, credit cards or even rental agreements. Knowing what a derogatory mark is and why it matters can help you know how to read your credit report and make wiser financial decisions.

What is a derogatory mark?

A derogatory mark is a negative record on your credit report that indicates you did not repay the lender according to the terms of your agreement. This could result from something simple, like a missed payment, or a more serious issue, such as defaulting on a loan or declaring bankruptcy.

These marks typically end up on your credit report in one of two ways. The most common occurs when your lender or creditor reports the information to the credit bureaus. Once this happens, the incident is recorded on your credit report. In other cases, financial issues like foreclosures, repossessions and bankruptcies are considered public records. These are often obtained by the credit bureaus and added to credit reports.

Types of derogatory marks

There are several different types of derogatory marks. Here are the most common.

How do derogatory marks affect your credit?

Derogatory marks can significantly lower your credit score, potentially making it harder to get approved for credit cards, loans or mortgages. If you are approved, lenders may offer less favorable terms or higher interest rates. You may need to provide larger down payments on home or vehicle purchases, and credit card companies could reduce your credit limits or even close accounts.

Some employers conduct credit checks for jobs that require financial responsibility. Landlords may also deny rental applications due to a poor credit history.

The good news is, the older a derogatory mark, the less impact it has on your credit. However, its presence can still affect financial opportunities — sometimes for up to a decade.

Can you remove derogatory marks from your credit report?

In most cases, unless the mark is a result of an error, there’s no way to have it removed.

You could contact the creditor and request a goodwill adjustment for a one-time late payment or try to negotiate a pay-for-delete agreement. However, there’s a good chance these options won’t work. Pay-for-delete agreements are in a legal gray area so some creditors refuse to acknowledge them altogether. There’s also no requirement for a creditor to respond to a goodwill letter.

If you believe the derogatory mark is inaccurate or the result of a mistake, you can dispute it with the credit bureau. Once you provide evidence, the bureau will review the information. If the bureau confirms the mark is a mistake, it will be removed.

Otherwise, the only thing to do is work on rebuilding your credit while you wait for the required time to pass.

How can you rebuild your credit after a derogatory mark?

Even if you can’t remove derogatory marks from your credit report, you can take steps to lessen their impact over time. Because payment history is the biggest factor in determining your credit score, making on-time payments is typically the most effective way to improve it. It’s also important to keep your credit utilization low — ideally below 30 percent of your total available credit.

In addition, you can work on building positive credit by adding new accounts, such as secured credit cards or credit-builder loans, which can demonstrate responsible credit use and gradually boost your score.

How can you avoid derogatory marks?

The best way to avoid negative marks is by building responsible financial habits and proactively managing your credit. To prevent missed or late payments, consider setting up automatic bill payments for recurring expenses like rent, utilities or loan payments. You can also automatically pay the minimum balance due on credit cards each month, and then make extra payments separately. This can help ensure you don’t fall behind.

It’s also critical to regularly monitor your credit and financial accounts. Review your billing statements, credit card balances and loan accounts to catch potential issues before they become bigger problems. Periodically checking your credit report can help you spot errors or fraudulent activity that could lead to unnecessary derogatory marks.

Lastly, creating a realistic budget and sticking to it can help you avoid financial strain that might lead to missed payments or account defaults. Prioritize necessary expenses, track your spending and create a financial cushion for unexpected costs, so you don’t end up short when payments are due.

The bottom line

Derogatory marks on your credit report can have a long-lasting impact, making it more difficult to qualify for loans, credit cards and even housing. These marks typically result from missed payments, accounts in collections, bankruptcies or other negative financial events. While they can significantly lower your credit score, their effect lessens over time, especially if you take steps to rebuild your credit.

If a derogatory mark is inaccurate, you can dispute it with the credit bureaus to have it removed. In some cases, you may also be able to negotiate with creditors to settle a debt in exchange for deletion. However, most derogatory marks will remain on your report for seven to 10 years, depending on the type.

The best way to protect your credit is to avoid derogatory marks altogether by practicing good financial habits. This includes making on-time payments, keeping debt levels manageable and regularly monitoring your credit.

Frequently asked questions

• Should I pay off old, unpaid debts?
  

  Generally, it’s a good idea to pay debts you owe, if you have the means to do so. Unpaid debts, such as charge-offs or collections, can continue to hurt your credit score and even lead to legal action.

  While paying off an old debt won’t immediately remove it from your credit report, it stops further damage, prevents interest and fees from piling up and may improve your chances of getting approved for credit in the future.

  Some newer credit scoring models ignore paid collection accounts, which means settling your debt could help your score in certain situations. Additionally, some lenders are more likely to approve applications if derogatory accounts are marked as paid rather than outstanding.

   

• Can you buy a house with a derogatory mark on your credit?
  

  Yes, but it may be more challenging. Many mortgage lenders have minimum credit score requirements, and derogatory marks — especially recent ones — can lower your chances of approval or lead to higher interest rates.

  However, some loan programs, such as FHA loans, are more lenient toward applicants with derogatory marks on their credit as long as they meet other financial criteria.

• Can I remove a derogatory mark by closing the account?
  

  No, closing an account does not remove derogatory marks from your credit report. If the account had late payments, defaults or other negative activity, those records will remain for up to seven years from the date of the delinquency, even after the account is closed. In some cases, closing an account may hurt your score by reducing your available credit, which increases your credit utilization ratio.

• Will settling a debt remove it from my credit report?
  

  Settling a debt won’t remove it from your credit report, but it may change how it’s reported. Instead of showing as unpaid, the account will be marked as “settled” or “paid, settled for less than the full amount.”

  While this doesn’t erase the derogatory mark, some lenders view a settled debt more favorably than an unpaid one. If you’re negotiating a settlement, you can ask the creditor if they are willing to remove the mark as part of the agreement, though they are not obligated to do so.