Derogatory marks are negative indications on your credit report that can stay there for the better part of a decade. Such marks – whether from a missed payment or bankruptcy – can drag your credit score down and affect your ability to get credit in the future.
As well as making it harder to qualify for the best personal loans or credit cards, a derogatory mark coupled with bad credit can also make it difficult to refinance your home. Additionally, it can lead to higher insurance premiums and even make it harder to rent an apartment or get a job.
Fortunately, the impact of derogatory marks on credit tends to decrease over time.
Derogatory marks and how long they last
There are several different financial events that can result in a derogatory mark. Below, we’ve outlined eight of these, along with how long each one can stay on your credit report, and what you can do to minimise the damage:
Missed payments
7 years
Late payments are typically those made 30 days or more after the payment due date. Usually this results in a “minor” derogatory mark, but each subsequent late payment is weighted more heavily and can further damage your credit score.
What you can do:
Make the payment as soon as possible. If it’s your first late payment, your lender may agree to waive the late payment fee. If you’re continually struggling to meet payments, however, speak to your creditor to see if you can arrange a hardship plan.
Account charge-off
7 years
If your lender decides you’re unlikely to repay your debt – if you’ve missed several payments, for example – it can write or “charge off” the account. The debt may then be sold to a collection agency which can be even worse for your credit. In this case, two accounts will appear on your report – the charged-off account and a new collection account.
What you can do:
Pay off the debt or look to negotiate a settlement where you pay less than the full amount owed. This won’t remove the negative mark from your report, but it will prevent you from being sued.
Collection accounts
7 years from first date of a delinquent payment
If your original lender charges off the debt and sells it to a third-party debt collector, the debt will remain in collections until you pay it off, are sued, or the statute of limitations runs out.
What you can do:
Pay the collection agency if you’re able to and ask for the account to be marked as “paid in full”. This won’t remove the mark from your credit report, but it will remove the risk of being sued, as well as show other lenders you paid off the loan.
Repossession
7 years
Your mortgage lender can repossess your home if you are unable to keep up with your repayments. Likewise, if you continually miss payments on an auto loan, your lender can auction off your vehicle to recoup its money.
What you can do:
Repossession can have a big impact on your credit score so it’s important to try and reduce this by paying any other bills on time and in full.
Bankruptcy
7 or 10 years
In Chapter 7 bankruptcy, certain assets are sold to pay off unsecured debts such as personal loans and credit cards. This then allows the borrower to start over with a clean slate.
In Chapter 13 bankruptcy, on the other hand, you can usually keep your possessions. Instead, a more affordable repayment plan is set up with your creditors which typically spans a three or five-year period. Once you finish the plan, any remaining unsecured debt is discharged.
Note that bankruptcy is extremely damaging to credit and should always be considered with care.
What you can do:
Chapter 7 bankruptcy will automatically be removed after 10 years, while Chapter 13 bankruptcy will automatically be removed after 7 years. However, it’s a good idea to take steps to start rebuilding your credit score as soon as possible.
Tax lien
7 years from the filing date, or indefinitely if the lien is unpaid
Liens are usually the result of unpaid taxes. The federal government can place a lien against your property in an attempt to recover the cost.
What you can do:
Pay your taxes as soon as you can to reduce the risk of the mark staying on your report indefinitely.
Student loan default
7 years
Late payments can affect your credit score after 30 days for private student loans and 90 days for federal student loans. Private student loans often default after three missed payments, while federal student loans go into default if you don’t make a payment for 270 days.
What you can do:
For private loans, contact your lender as soon as possible to see if you can arrange a new payment agreement. For federal loans, you can either pay the full amount of the loan, enter a loan rehabilitation agreement, or apply for a direct consolidation loan.
Civil judgments
7 years if paid. If it remains unpaid, the timeframe can be reset, depending on local laws
These are also referred to as civil claims and can be taken out for unpaid debts. If a creditor or collection agency files a suit in court and the court rules in their favor, a judgment can be taken out against you and this will appear on your credit report. It can have a severe negative impact on your credit score.
What you can do:
Pay your civil judgment as soon as possible.
Improving your credit score
The majority of negative marks will fall off your credit report after seven years. However, the effect of these marks should start to diminish well before that, and even with derogatory marks on your report, you can still work to raise your credit score.
Seeking help from the best credit repair services is a good place to start, but the following steps can also help boost your credit score:
- Make payments on time – to give you peace of mind and ensure you are not charged unnecessarily, set up automatic payments on your accounts for at least the minimum amount. Talk to your lender right away if you don’t think you can afford your payments.
- Check your credit reports – if you spot any inaccurate information get it corrected as soon as possible. This includes incorrect derogatory marks.
- Consider your credit utilization – as a general rule of thumb, it’s best to keep credit balances below 30% of the credit limit.
Taking such action should help raise your credit score after three to six months.
