Derogatory Items on Your Credit Report

Derogatory Items on Your Credit Report

Having all accounts or tradelines in good standing is the ideal report to have. However, there are times where you may see a derogatory item on your report. It may either be by mistake or based on your own actions.

Note: it is always advisable to review your report often and regularly.

Analyzing a credit report may seem like a daunting task at first. However, learning to understand what you are reading plays a key role in better reviewing and monitoring your report.

Failing to understand important information can result in higher interest rates, denial of credit or financing opportunities, and possibly job denial. Some employers look at your credit as part of job qualifications.

You will want your credit report to be in tip-top shape going into any situation where your record will be reviewed in a determination of credit or job offering. In this article, I will inform you of items to look for. I will explain what you should do to avoid derogatory marks.

We researched & reviewed the 5 best companies in the industry. They can help you remove derogatory items from your report.

Derogatory Entries: What are they?

Items on your report that are detrimental to having a good credit score are known to be derogatory or damaging. Derogatory tradelines or reports are the items that identify you as being a credit risk or a person who does not pay his or her bills on time.

Derogatory items are those blemishes you want to avoid at all costs. They pop up like credit report acne, and are almost equally as hard to get rid of.

You may wonder what constitutes a derogatory item. There are several items that can appear on a credit report as derogatory. You should become familiar with what they are and how they occur to curtail possibilities of any type making its way onto your credit report.

Derogatory items are often the result of nonpayment. It could be from a revolving line of credit, like a credit card.

It could also be from personal loans for cars and student loans. Mortgage payment histories can also display derogatory items, such as late payments and how late the payments were.

Not paying your car note on time can result in a late payment being reported, but can also result in a repossession if you neglect making a payment for an extended period of time. Below, you will find various derogatory items and how they can appear in your credit history.

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Foreclosure: The Big “F”

You bought your home, now you’re living the American dream. A few years down the road, you fall upon hard times.

You get behind on your mortgage payments. For some reason, you fail to work something out with your lender. Now, the bank owns your home and the record of non-payment sticks with you.

The record is now on your credit report for 7 years.

Because this derogatory item directly involves your family’s well-being and the loans are for large sums, a foreclosure sticks out like a sore thumb and paints a picture that you cannot be trusted to pay for the most basic of human necessities: shelter.

Foreclosures should not be thought of as the end of the road, although you should not expect to obtain another mortgage in your name anytime soon. Renting a home or an apartment may be hard, too. Some landlords will view your credit report for credit worthiness before they sign a lease with you.

Before foreclosure blemishes your record, you should seek out relief from your lender or a foreclosure prevention program in your state. After the housing collapse of 2008 due to garbage loans, the government has taken steps to ensure consumers are buying affordable homes and receiving the counseling they need prior to accepting a mortgage.

Also, avoid common pitfalls & foreclosure relief scams.

Prior to purchasing my home, I attended several home-buying classes that awarded a certificate. They then showed the certificate to the lender as a tool indicating readiness to buy.

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Delinquent Payments: The Most Common

Late payments are probably the most common derogatory items on a credit report. Late payment derogatory items arise due to your failure to pay on time or the company receiving your payment later than the cut-off date for the billing cycle.

Because late payments can happen anywhere during the seven-year reporting period, you may see it appear on an account that has a positive status that states “Pays as agreed”. Don’t be fooled into thinking future lenders don’t look for late payments under accounts with this status.

I have previously seen this status on my credit report regarding my student loans. When my student loan account was in default, my credit report displayed each student loan account as being derogatory. Once I contacted my lender and collection agency, I was able to create a payment plan to remove my account from default.

Once I removed the defaulted status and re-entered school with my loan in deferred status, they updated my tradelines to “pays as agreed”. Delinquent payments remained, exhibiting how I was 30+, 60+, 90+, and 120+ days late.

Thirty days late typically means you have missed the deadline for one payment. A one-time occurrence may not hit your report too hard. Sixty days late and beyond warrants a double digit drop in your score.

Late payments remain on your report for seven years, so try to avoid late payments at all costs. Try contacting your lender to work out a payment plan to avoid a late payment reporting.

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Collections On Your Report

As a rule of thumb, if you do not pay your account on time for several billing cycles, your account will go to collections. The original creditor or service provider will make several attempts collect the due payment from you. It may be by letter, telephone, or email.

If you fail to work out a payment plan to prevent a collection attempt, then you may be stuck with a collection agency calling all of your phone numbers and sending scary letters.

Collection agencies may report the collection without the name of the original creditor. Beware, as this can be seen as a tactic to get you to call them.

According to credit.com, collection agencies should list the name of the original creditor on the derogatory tradeline.

There were times where I did not know who the collection agency bought my debt from. I would conduct my own research to identify before I called.

Dealing with the collection agencies was a formidable task for me. It seemed that they would use scare tactics to get me to make payments, resetting the clock for last activity on the credit report.

Sometimes, the collection company works in tandem with the original creditor to resolve the payment issue. Other times, the creditor gives up collections attempts and sells the account for pennies on the dollar.

When this occurs, the borrower tends to think that they are out of the woods, but this really is no cause for celebration.

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The Charge-off: Double Jeopardy

When a firm writes off accounts as bad debt, they create a new position for another collection agency to step in a make money. Companies have ledger accounts that are used to report bad debts that they are not collectible.

When the firm reports the unpaid amount to the bad debt account, they typically sell the account to make money from the ordeal.

Creditors will charge off the debt, and collection agencies will pick up the debt at a much lower price while advising you to pay them the full amount.

Both the charge-off tradeline and the new collection account now show on your credit report. Your score will take a nose-dive, as both of these account types are very negative.

I remember having a charge-off and a collection from an old student credit card. The date I first became delinquent on the payment was around five years before the collection account appeared.

What I did notice was that when the charge-off account rolled off my report, so did the collection – for good. Even though you have two accounts for one debt, the first date of deletion connects to both of them, in reference to age of the account.

In the case of my charge-off, I dared not touch it. I hired a credit repair company like Sky Blue to assist with removal of the charge-off and collection.

The credit repair company was not successful with the charge-off, but was able to remove the collection. We agreed to let the charge-off roll off.

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Repossession

Having your property taken away from you due to non-payment can be embarrassing and inconvenient, as your creditor seems to forget the other timely payments you made, but non-payment is bad for a business just as a repossession is bad for your credit score.

Repossessions are derogatory on your report and they show that you are a greater risk even with secured debt. Secured debts are those backed by additional money (security deposit) or property.  Unsecured debt (like credit cards) are based on good faith that you will make timely payments consistently.

You can prevent repossessions with extensive communication with the original creditor. Car repossession, specifically, allows for auctions to take place to recoup money and fees associated with defaulted payments.

If they sell your vehicle for more than the remaining amount you owe, you may be able to avoid the repossession hitting your report. Once a derogatory repossession hits your report, it can prevent you from being able to secure another car loan or be subject to a loan with extremely high interest rates.

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Tax Liens

Not paying your taxes could result in a lien on your property for the amounts owed. Federal and state agencies, such as the IRS and state treasury offices, use this tactic to motivate tax payers to fork over the cash due to them.

Tax liens are similar to repossessions, in that the they end up on your credit report and they can seize your property to clear your debt. They can also dissolve liens at auction when your seized property sells, creating funds to cover your debt.

Tax liens can remain on your credit report past seven years, which is similar to federal student loans. Federal student loans have no statute of limitations, so they are due until you die or have them discharged for another reason. Tax lien balances are due to the government until paid in full or until you die.

These can be detrimental to your credit, but according to a USA Today report, some liens may not impact your score if the information does not have the taxpayer’s name and address.

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Civil Judgments

Let’s say, for instance, you are getting several creditors’ calls a day. You don’t have the funds to pay your debt, so you ignore them. After a few months, the creditor stops calling you.

You are relieved that you no longer have to dodge the call of the credit company. Then, one day you open your door, and someone is there to serve you with a court order to appear in court or reply to an action against you.

What you may be experiencing is the onset of a civil lawsuit initiated by a creditor you ignored. Now, you must speak with your creditor.

You must reach a settlement in court, and if you lose, the judgement will make its way to your credit report.

Derogatory judgments can damage a bad credit score, as well. This could combine with any other derogatory information about the account, including late payments and repossession of property.

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Bankruptcy: The Ugly Last Resort

There are times where you may not be able to make your payments and your finances are very tight. You may feel that you are drowning in debt without the ability to gasp for air every now and then.

Your only option, it may seem, is to file for bankruptcy. There are two types of bankruptcies you can file for. However, you initially must choose the one that fits you best.

Be forewarned that student loans, child support, alimony, and personal injury/death liability judgements cannot be discharged in a bankruptcy. So do not choose this option to resolve these types of debts (and be sure to avoid falling for common scams).

Chapter 7

The first type of bankruptcy you can declare is Chapter 7. In Chapter 7, you will lose nonexempt property to repay your debt to your creditors. Non-exempt property includes second homes, expensive clothing and jewelry, and valuable collections, such as stamps and coins.

Creditors will have to cease aggressive collection methods, meaning calling your home multiple times a day, but you will lose some luxuries in the process.

You can resolve the Chapter 7 process can be resolved in a few months. However, the derogatory implication remains on your credit report for up to ten years. In the meantime, you may be able to obtain new credit but at a much higher rate.

Chapter 13

Chapter 13 declaration allows you to keep most of your property, in contrast to Chapter 7. Under Chapter 13 bankruptcy, you enter into a payment plan that can last up to five years, paying back your creditors.

What Chapter 13 allows is for you to use your discretionary income to pay an agreed upon amount to all creditors to satisfy your debt. Your discretionary income is the money you have available after paying obligations like child support, your mortgage, and other necessities to maintain a home.

During this time, it will be hard to obtain new credit. Your credit report will reflect your Chapter 13 filing and the accounts included. Delinquent accounts prior to the filing will fall off your report seven years after they first became delinquent.

Accounts that were in good standing prior to the filing will remain on your credit report seven years after the filing. The bad debt will disappear from your record after your payment plan ends.

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Conclusion

As outlined above, there are many forms of derogatory items that can wreak havoc on your credit report. You must be vigilant in paying bills on time, examining your report frequently, and resolving any issues that may arise.

If there is a time when you spot derogatory items on your report, you should immediately seek to remove the item if it is inaccurate or reporting longer than it should be. You can gain a jump start by employing the expertise of a reputable credit repair company.

When researching a company to choose, look for key performance indicators such as types of accounts removed, how many removed, and the overall rating of customer service. This will better aid in gauging how the credit repair firm will perform in helping to remove your derogatory item.

When I found derogatory late payments and collections on my credit report, I didn’t know what to do. Immediately, I researched what to do and it was quite overwhelming. I decided to hire a credit repair company to do the leg work and within a month (standard response time) three derogatory items disappeared from my credit report.

You can also opt to undertake removing the items on your own. It is possible, but you must do your research in the consumer laws regarding credit and the credit reporting agencies.

Shantal Darby

About Shantal Darby

Shantal has developed a passion for credit and debt management over the years in pursuit of cleaning up her own credit. She volunteers information on credit and debt literacy, helping those around her achieve their own credit goals. She holds an MBA from the Louisiana State University in Shreveport and a Bachelor in business administration from Saint Leo University in Saint Leo, Florida.

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