Credit Report Red Flags
Credit is more than a card in your wallet. It’s also your financial reputation. Though you want to have a good reputation, small errors can affect how creditors see you. In the world of credit, any mistake you make can lead to a lower credit score. In financial terms, these mistakes are known as derogatory marks. There are a number of derogatory marks that could be preventing you from achieving a good credit score and be in the way of you getting approved for a credit card or loan.
Derogatory marks are blemishes on a credit score. They appear on the credit reports of those who have issues with their loans and they cover a variety of different logged behaviors. Derogatory marks could include things like missed payments, filing for bankruptcy, or even for late payments. In all cases, derogatory marks negatively impact credit scores and should be avoided.
When a derogatory mark appears on a credit report, it can linger there for seven years and sometimes even longer. If you see a derogatory mark on your credit report, it is important that you know why. In some cases, they can pop up due to a mistake. In these situations, knowing that the derogatory mark exists would allow you to be able to dispute the mark.
If you notice a sudden drop in your credit score and aren’t sure why, a derogatory mark might be the cause. Today, we will be looking at different types of derogatory marks, the severity of them, how long they last, and why they appear in the first place.
Understanding Derogatory Marks
There are a number of different ways that you can receive derogatory marks on your credit report. Since these marks can last for years, it is important to know what may cause a derogatory mark so that you can understand why you may not be approved for credit and can make plans for ways to improve your credit.
The first and most common reason a derogatory mark appears on a credit report is due to a missed payment on a loan. Typically, after 30 days without receiving a payment, creditors will report the account as delinquent, which will result in a mark. Marks get worse the longer the payment isn’t received. For instance, they will affect your credit score more negatively after the 60-day mark, the 90-day mark, and the 120-day mark. Even after you pay off the late payment, the mark can stay on your credit for up to seven years.
Charge-offs and Collections
Charge-offs occur after missed payments have been logged. After multiple missed payments, a creditor may “charge off” a payment, meaning that they have written the due payment off as a loss. If this happens, not only will the missed payments themselves be derogatory marks but so will the charge-off itself. After the payment is charged-off, it can be sold to a collection agency, which will create another derogatory mark in addition to the extra fees and interest owed on the past-due payments.
Derogatory marks from charge-offs and collections typically stay on credit accounts for seven years after they appear.
Foreclosure and Repossession
Creditors have varying ways of collecting payments. Missing credit card payments can seriously damage your financial reputation and lead to future problems. However, missing vehicle or house payments could have even more serious repercussions. For instance, if you miss too many payments on a mortgage and fall too far behind on making up the debt, the lender can take back the property. The lender can then try to force the sale of the home to make up for the lost payments. If this happens, you’ll be out of a home, and will also receive a serious derogatory mark on your credit that can last up to seven years.
Similar to a mortgage, if you fail to make payments on your car, truck, snowmobile, or tractor, a lender can repossess it, sometimes without warning. In these instances, it may not matter that the vehicle in question is used for work. Like foreclosures, these can lead to marks that last seven years.
Of payments to miss, taxes are some of the worst. The interest rate on these missed payments is high, and collection for taxes can be aggressive. Avoiding tax payments leads to derogatory marks on tax returns. Unfortunately, once they find their way onto a credit report, they will not be removed anytime soon.
Even if a late tax lien is taken care of, it can still linger on a credit report for up to seven years. However, if the tax lien is not paid, it can stay on someone’s credit indefinitely.
When a debt becomes unbearable, many consider filing for bankruptcy. There are various types of bankruptcy depending on the amount of debt, the kind of debt, and the speed at which the debtors would like the debt resolved. While many who file bankruptcy do not have much of a choice, bankruptcy does have a significant impact on credit.
A derogatory mark from bankruptcy can last up to seven years for a Chapter 13 bankruptcy and up to 10 years for a Chapter 7 bankruptcy.
There are other ways to get derogatory marks on credit. Some marks come from debt settlements. In this situation, the creditor and the payer come to an agreement and lower the payment due, relieving the payer but negatively affecting their credit. Also, if an individual has to pay back debts after a civil lawsuit is resolved, that will also negatively impact credit. Essentially, any time you fail to pay a bill when you are supposed to, it results in a derogatory mark.
How to Improve or Repair Credit When Derogatory Marks Appear on the Report
If you find yourself with derogatory marks on your credit, there are ways to fix your credit and move forward. The first and most important step to rebuilding good credit is to make payments on time. Even if it’s just the minimum, pay all credit card payments, as well as other payments, before they are due. This has the biggest impact on credit.
Another way to fix credit is by using your credit card less. Credit utilization affects your score, and the less total credit you use, the better your credit scores will be.
Finally, pay close attention to your credit scores. If something is lowering your score, make sure you understand why. In some cases, you might be making a mistake you didn’t even know about. By staying on top of your credit score you can anticipate changes, dispute incorrect marks, and work to better your financial reputation.