Negative marks on your credit report (also called ‘derogatory items’) can really set you back. These are red flags that alert lenders that you may not be the most reliable when it comes to paying back debt. Whether it’s missed payments on a credit card or more serious mishaps like bankruptcy or foreclosure, these marks can do more than just pull down your credit score.
The meaning of the term ‘derogatory items’ may vary slightly depending on the lender. Typically, an account is tagged as derogatory if you fail to meet the loan terms and the payment is running late by thirty days or more.
This label can have a negative domino effect. For instance, existing creditors might reduce your credit line, or you could get slapped with higher interest rates when you apply for a home loan. Usually, 620 is considered a good credit score for a home loan, but a score of 740 or higher is ideal to qualify you for the best mortgage rates and terms possible.
Given their lingering impact, working with the best credit repair companies to remove derogatory items can work to your advantage. A reputable service can accelerate the process of disputing inaccuracies and negotiating with creditors, expediting your journey to creditworthiness.
What Causes Derogatory Items
There are a few ways that derogatory items can land on your credit report:
Late Payments
Missing a payment on any form of debt–be it a credit card, loan or even a utility bill–can lead to a late payment being reported on your credit history. What’s more, these late payments can linger on your report for up to seven years. It’s worth noting that chronic late payments or those that are significantly overdue can have a severe impact on your credit score.
Collections
If a debt goes unpaid and is transferred to a collection agency, it becomes a derogatory mark. Collection accounts can also remain on your credit report for seven years. Not only do they decrease your score, but the presence of a collection account can also make you less appealing to future lenders.
Charge-Offs
When a lender decides that a debt you owe is unlikely to be collected, they may write it off as a loss. This is known as a ‘charge-off’ and is one of the more severe derogatory marks you can have on your credit report.
Bankruptcy
Filing for bankruptcy is a serious action that has a long-lasting impact on your credit report. Bankruptcy can show on your credit for up to ten years and will make it extremely challenging to secure any form of credit. It can also affect your employment opportunities.
Foreclosure
If you lose your home to foreclosure, this will be reported on your credit and stay there for up to seven years. The aftermath of foreclosure can make it difficult to secure housing and affects not just your ability to buy another home but can also impact rental application reviews.
How to Handle Derogatory Items
There are a few ways you can try to remove derogatory items from your credit report, including:
Pay Off Debts
Paying off outstanding debts can not only improve your credit score but also demonstrate to future lenders that you have taken corrective action. The sooner you settle these debts, the more quickly your credit report can recover. Some credit agencies might even offer a pay-for-delete option, where the derogatory mark is removed upon payment.
Dispute Errors
Mistakes do happen. If you find inaccuracies on your credit report, it’s your right to dispute them.
Initiating a dispute involves contacting the credit reporting agency that has published the incorrect information and providing evidence to support your claim. The agency is legally obligated to investigate and correct any errors, typically within thirty to forty-five days. A credit repair company like The Phenix Group can handle this task for you, ensuring all necessary steps are carried out correctly.
Do credit repair services really work? Legitimate credit repair services can be effective in disputing inaccuracies on your credit report and improving your overall credit score, although results can vary depending on individual circumstances.
Negotiate With Creditors
Sometimes, direct negotiation with your creditors can result in the removal of derogatory items such as late payments and collections. You can offer to pay off the debt in full or negotiate a settlement amount in exchange for the creditor agreeing to remove the derogatory item. Get an agreement in writing because verbal agreements are challenging (if not impossible) to enforce.
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Unlock your financial freedom with The Phenix Group. Our expert team of credit analysts is here to understand your unique financial situation and create a tailored roadmap to your success. Reach out today to learn more!