What Is a Derogatory Public Record on Your Credit?
Understand what derogatory public records are and how these negative financial events appear on and impact your credit report.
A derogatory public record on your credit refers to negative financial or legal events that become part of the public domain. These records indicate past financial distress or legal issues, which can significantly influence how creditors and lenders view an individual’s creditworthiness.
What Constitutes a Derogatory Public Record
While several types of public records exist, only certain ones typically appear on credit reports. Currently, bankruptcy filings are the main public records that credit reporting agencies include on consumer credit reports.
Bankruptcy involves a legal process for individuals unable to repay their outstanding debts. Two common forms are Chapter 7 and Chapter 13. Chapter 7 bankruptcy often involves the liquidation of certain assets to pay off debts, offering a swift discharge of qualifying obligations. Chapter 13 bankruptcy, conversely, establishes a repayment plan over three to five years, allowing individuals with regular income to reorganize their debts and repay creditors over time.
Foreclosures also constitute a significant derogatory public record. This is the legal process by which a lender repossesses a property when the homeowner fails to make mortgage payments. A foreclosure indicates a severe default on a secured loan and remains a public record that impacts credit.
Historically, tax liens and civil judgments were also reported on credit reports. A tax lien is the government’s legal claim against property when an individual or business neglects to pay a tax debt. Civil judgments are court orders requiring one party to pay another, often resulting from lawsuits over unpaid debts or breach of contract. However, since 2017 and 2018, the three major credit bureaus (Experian, Equifax, and TransUnion) removed tax liens and civil judgments from consumer credit reports. These remain public records but are generally no longer found on credit reports.
How Derogatory Public Records Affect Credit Standing
The presence of derogatory public records on a credit report can significantly harm an individual’s credit standing. Credit bureaus, such as Experian, Equifax, and TransUnion, collect and maintain this information, incorporating it into credit reports. These records are then factored into credit scoring models like FICO and VantageScore.
A derogatory public record typically leads to a substantial drop in credit scores. For instance, a bankruptcy can lower a credit score by 200-300 points, depending on the individual’s credit profile before the filing. Foreclosures can similarly reduce scores by 150-250 points. Even if a person already has a low score, a bankruptcy filing can still cause a notable decline.
The negative impact extends beyond just a lower credit score. Lenders and creditors view these records as indicators of higher financial risk. This can make it considerably harder to obtain new loans, credit cards, or mortgages. Even if approved for credit, individuals may face less favorable terms, such as higher interest rates or stricter repayment conditions. Derogatory public records can also affect other financial opportunities, including renting an apartment or securing certain types of employment, as many background checks include credit history reviews.
Sources and Accessibility of Derogatory Public Records
Derogatory public records originate from official governmental and legal proceedings, making them accessible to the public. These records primarily stem from courts and various government agencies. Bankruptcy filings, for example, are generated by federal bankruptcy courts. Civil judgments are issued by civil courts following legal disputes.
Foreclosure records are typically processed and maintained by county recorder’s offices or similar local government entities where property deeds are filed. Tax liens originate from federal tax authorities like the IRS or state and local tax agencies when taxes go unpaid. These governmental bodies are legally required to maintain these records and make them available for public inspection.
Credit bureaus gather this information from these public databases. While some courts may have online databases, credit bureaus often rely on independent contractors or third-party vendors to manually collect and scan public records from courthouses across the country. This collected data is then processed and, if applicable, included in an individual’s credit report. Due to their public nature, these records can also be accessed by background check companies or individuals through specific government websites or court clerk offices, even if they no longer appear on standard credit reports.
Understanding the Lifespan of Derogatory Public Records on Credit Reports
The duration that derogatory public records remain on credit reports is governed by federal law, primarily the Fair Credit Reporting Act (FCRA). The reporting periods vary depending on the type of record. These timeframes are generally fixed, and after the specified period, the records are typically removed automatically from credit reports.
For bankruptcies, the reporting period depends on the chapter filed. A Chapter 7 bankruptcy remains on a credit report for up to 10 years from the filing date. A Chapter 13 bankruptcy generally stays on a credit report for up to 7 years from the filing date.
Foreclosures typically remain on a credit report for 7 years. This 7-year period usually begins from the date of the first missed payment that led to the foreclosure.