Derogatory items on your credit report can be a big problem for your finances. These negative marks can stay on your credit report and damage your credit scores for several years. Fortunately, there are some things you can do to avoid getting derogatory marks as well as reduce the damage if you do end up with a negative item on your credit.
We’ll help you understand minor and major derogatories, how derogatory items affect your credit score, and what you can do about them.
The word derogatory simply means negative, so a derogatory credit item is a negative item on your credit report.
Derogatory items hurt your credit score and can impact your chances of getting approved for credit.
There are two types of derogatory items: minor derogatories and major derogatories.
A minor derogatory is a payment that was past due, either 30 days late or 60 days late. If, after the 30- or 6-day late, you brought the account current again, then it is considered a minor derogatory mark. However, if you are currently 30 to 60 days late, it is considered a major derogatory, which we will discuss below.
Lenders cannot report your account as late to the credit bureaus until 30 days have elapsed since the missed due date, so if you pay your bill anywhere between one to 29 days after the due date, you should not see a derogatory item reflected on your credit report.
However, your lender may charge a late fee, so it’s still best to pay all of your bills on time. If you’ve never been late on the account before, you can contact your lender and see if they can waive the late fee for the accidental late payment. Many lenders are willing to do this for account holders that otherwise have good records.
In addition, if you have a promotional interest rate, you will most likely forfeit the promotional rate if you miss a payment, even if you were only a few days late.
If you miss your due date twice in a row and become 60 days late, the situation becomes more serious. At this point, the credit card issuer can hit you with a penalty APR of up to 29.99%.
Not only will this high interest rate apply to all your purchases for at least the next six billing cycles, but in this case, the bank is also allowed to apply the penalty rate to your existing balance as well. Not all credit cards have penalty APRs, however, so check the terms of your card to see if you could be subject to one.
Thankfully, “universal default” is a thing of the past—the practice of credit card companies raising consumer’s interest rates if they were late on any loan with any lender was banned by the Credit Card Act of 2009.
However, the exception is if you have multiple cards with the same bank. In this case, if you miss a payment on one of the cards, the bank is allowed to raise your rates on all of the cards you have with them.
A major derogatory credit item is typically defined as an account that is 90 days past due or more. If you have a major derogatory on your credit report, that is a huge red flag to lenders, and it may hinder you from being able to qualify for credit.
Examples of major derogatory credit items include:
As you may have guessed, any derogatory mark on your credit report can seriously damage your credit score. However, they do not affect everyone equally. There is no predetermined amount of points that is associated with any given credit action.
“There is no fixed value to any derogatory entry. Their value is always relative to the presence or absence of other similar derogatory entries on a credit report. So, the answer to the question ‘how much?’ varies from ‘not at all’ to ‘a whole lot’ — and everything in between.”
In other words, the effect of a derogatory item could range from a significant drop in your credit score to potentially no difference in your credit score at all. It is going to depend on 1) what else is already in your credit file and 2) the severity of the derogatory information.
For those who have pristine credit records, even one 30-day late payment can do some serious damage to their credit scores. On the other hand, if you already have some delinquencies on your report, additional delinquencies won’t have as great of an impact.
Derogatory items will also have a larger impact on those with thin or short credit files, meaning they do not have very much positive credit history to help soften the blow of a negative mark. In contrast, those with a thicker file or longer credit history will have more positive history in their file to help balance out any negative events.
Another complication is the concept of credit scoring scorecards or “buckets,” which score groups of consumers differently based on certain characteristics of their credit profile.
As a hypothetical example, there could be a scorecard for consumers with no major derogatories and a scorecard for consumers with one major derogatory. In this case, getting your first major derogatory mark could put you into a different scorecard, wherein your score would be calculated in an entirely different way than it was before.
While the impact of a derogatory item is going to vary from person to person depending on their unique individual credit history, one thing we do know for sure is that derogatory items become less impactful to your credit as time passes.
In fact, it is still possible to have good credit with a derogatory mark on your credit report if it is an old item and you have balanced it out with positive credit history since then.
In terms of how bad late payments are for your credit, it’s not so bad to miss a payment on one account for one or two months, according to an article on The Balance. However, missing payments on several different accounts for one to two months will be worse for your credit. And finally, missing even one payment for three months in a row will be equally as harmful as a charge-off or collection since they are all major derogatory items.
When it comes to collection accounts, for example, collections that have been paid off and small-balance collections have different impacts depending on which credit score is used.
FICO 8, the most widely used credit score, considers both paid and unpaid collections to be major derogatories. That’s one reason why paying off a collection account may not always increase your credit score.
FICO 9 and VantageScore 3.0 and 4.0 disregard collection accounts altogether once they have been paid. In addition, these three scoring models assign less weight to medical collections. FICO 8 and FICO 9 ignore collections that had an original balance of less than $100.
Unfortunately, simply bringing the account current by paying the past-due balance does not make the derogatory mark disappear. It does not negate the fact that you were late paying your bill, which is important information that helps determine your credit score and helps lenders decide whether they want to do business with you.
Payment history is the most important part of both your FICO score and your VantageScore for a reason. It is highly predictive of how much of a credit risk you represent to lenders. For that reason, accurate derogatory information must stay on your credit report even after you have caught up on payments.
However, can still be beneficial to pay off the derogatory items on your credit report. Experian says, “While paying off a derogatory account won’t automatically remove it from your credit history, it will be updated to show it has been paid, and lenders may view a paid derogatory more favorably than an unpaid one.”
Although bringing an account current will not remove the negative information from your credit report, it is still a good idea. Having made a late payment in the past and then catching up is better for your score than currently being late.
Moving forward, do your best to make sure you’re not late again.
Maintaining a positive credit history from now on is the most important thing you can do to minimize the effect of a derogatory item and restore your credit back to health.
Once you have done all you can to mitigate the damage of a derogatory item, then it simply becomes a matter of waiting until the negative mark ages off your credit report.
In general, derogatory marks can be reported for up to seven years after the account was first reported as late, which is referred to as the date of first delinquency (DOFD).
If you get a court judgment against you, however, that will remain on your credit report for seven years after the judgment was issued, not seven years from the date you were first late on the original debt.
Certain types of accounts can stay on your credit report even longer. Depending on the type of bankruptcy, for example, bankruptcy may stay on your credit report for up to 10 years.
According to Experian, since a Chapter 13 bankruptcy requires you to pay some of the debts you owe, this type of bankruptcy is removed from your credit report after seven years. With a Chapter 7 bankruptcy, you don’t pay back any of the debt, so it is removed 19 years after the date of filing instead of seven years. The individual accounts associated with the bankruptcy will still disappear seven years after the DOFD for each account; filing for bankruptcy does not affect the seven-year timeline.
Besides a Chapter 7 bankruptcy, all other delinquencies are required by law to be deleted from your credit report after seven years. However, the impact of a derogatory mark on your credit score will decrease over time, especially if you maintain a positive credit history going forward that can help outweigh the negative items.
If you have inaccurate negative items on your credit report, it’s in your best interest to dispute the derogatory items on your credit report as soon as possible.
Your credit reports should have instructions on how to dispute derogatory credit items that have been put on your credit report in error. The best way to dispute inaccurate negative information is to send a separate letter for each dispute via certified mail, along with any accompanying evidence that is needed to verify the validity of your claim.
Make sure to dispute the derogatory items on your credit report with the credit bureaus as well as with the creditor that is furnishing the data.
You can read more about how to dispute inaccurate derogatory items in our article, “How to Fix the Most Common Credit Report Errors.”
A letter of explanation is a letter that you write to a lender explaining the reason for negative marks on your credit report. This may be required by your lender when you apply for a mortgage, particularly when applying for a home loan that is subsidized by the government, such as an FHA loan or VA loan.
Your mortgage lender needs to be certain that you will be able to pay off your home loan. They will want to understand the circumstances of any derogatory items on your credit report in order to determine whether you have learned from your mistakes and taken steps to improve your situation or whether you may still be at risk of defaulting on a loan in the future.
A good letter of explanation should be truthful, clear, and detailed. If there were extenuating circumstances that led to you becoming behind on your bills, explain what happened and how you resolved the problem. As with a credit report dispute, be sure to include any documentation that supports your story along with your letter of explanation. Try looking up sample letters of explanation online if you need help.
Since accurate and timely derogatory information can’t legitimately be removed from your credit report, the best strategy is to prevent them from happening in the first place.
Here are some tips to help you keep your credit in the clear.
Having derogatory items on your credit report, particularly major derogatories, can be highly damaging to your credit for a long time. If there are derogatory items in your past, balance out the negative effects by adding positive payment history going forward, and use smart credit strategies to avoid getting derogatory marks in the future.