How Long Do Derogatory Marks Stay on Credit?
Understand the lifespan of negative credit entries, their effect on your financial standing, and how to correct inaccuracies.
Credit reports serve as comprehensive records of an individual’s financial behavior, documenting their payment history and credit obligations. Lenders, landlords, and even some employers rely on these reports to assess creditworthiness and make informed decisions. Derogatory marks represent negative entries that signal past financial difficulties. These marks indicate instances where financial obligations were not met, potentially impacting an individual’s ability to secure new credit or favorable terms. Understanding the nature and longevity of these negative entries is important for managing one’s financial health.
Defining Derogatory Marks
Derogatory marks encompass various negative events that can appear on a credit report, each reflecting a different type of financial setback. A common example is a late payment, also known as a delinquency, which occurs when a payment is made past its due date. Payments become eligible for reporting to credit bureaus once they are 30 days or more overdue.
Another type is a charge-off, which happens when a creditor deems a debt uncollectible, usually after 120 to 180 days of missed payments. The original creditor writes off the debt as a loss for accounting purposes, but the debt itself remains owed. Following a charge-off, an account may be sent to collections, meaning a third-party agency now attempts to recover the debt.
More severe derogatory marks include bankruptcies, which are legal proceedings for individuals seeking relief from overwhelming debt. Foreclosures occur when a lender repossesses a property due to missed mortgage payments, while repossessions involve the seizure of collateral, such as a vehicle, for similar reasons. Civil judgments, which are court orders to repay a debt, were once reported. However, the three major credit bureaus stopped including civil judgments on credit reports in 2017, though the underlying debt remains.
Standard Reporting Durations
The length of time derogatory marks remain on a credit report is governed by the Fair Credit Reporting Act (FCRA), a federal law designed to ensure the accuracy and privacy of credit reporting. For most negative items, the FCRA establishes a standard reporting period of seven years.
Late payments stay on a credit report for seven years from the date of the original delinquency. This means the clock begins ticking from the first missed payment that led to the negative status. Charge-offs are reported for seven years from the date of the first missed payment that initiated the default. For collection accounts, the seven-year reporting period starts 180 days after the date of the original delinquency that preceded the collection activity.
Bankruptcies have varying reporting durations based on the chapter filed. A Chapter 7 bankruptcy, which involves liquidation of assets to pay debts, remains on a credit report for up to 10 years from the filing date. A Chapter 13 bankruptcy, which involves a repayment plan, stays on the report for seven years from its filing date. Both foreclosures and repossessions are reported for seven years from the date of the first missed payment that led to the event. While major credit bureaus no longer include civil judgments, any reporting would adhere to a seven-year period from the filing date.
Impact of Reporting Durations
When a derogatory mark reaches the end of its mandated reporting duration, it is automatically removed from the credit report. This removal signifies that the negative information is no longer factored into credit scoring models. The natural expiration of these marks can lead to a positive shift in an individual’s credit score.
As negative entries disappear, the credit report presents a more favorable financial history. Lenders, when evaluating credit applications, will no longer see those specific derogatory events. This can improve an individual’s eligibility for loans, credit cards, or other financial products. The absence of these marks can also contribute to securing more competitive interest rates and better credit terms.
Correcting Inaccurate Information
Consumers have the right to dispute derogatory marks that they believe are inaccurate or fraudulent. The first step involves gathering information and documentation to support the claim. This includes obtaining copies of credit reports from each of the three major credit bureaus, which can be done for free annually through AnnualCreditReport.com. Supporting documents, such as payment records, account statements, or police reports for identity theft, should also be collected.
After gathering the necessary information, a dispute can be initiated directly with the credit bureaus. This can be done online, by mail, or over the phone. Consumers should clearly identify the specific item being disputed, provide the account number, and explain the reason for the dispute, attaching all relevant supporting documentation. It is also advisable to contact the original creditor or data furnisher directly, as they are responsible for providing accurate information to the credit bureaus.
Once a dispute is filed, the credit bureau has 30 to 45 days to investigate the claim. During this period, they will contact the data furnisher to verify the accuracy of the disputed information. If the information is found to be inaccurate, incomplete, or cannot be verified, the derogatory mark must be corrected or removed from the credit report.