What Is a Derogatory Trade on Your Credit Report?

A derogatory trade on your credit report signifies a negative financial event where an individual has not met their financial obligations. These entries appear when a creditor or lender reports unfavorable activity to major credit bureaus. Derogatory information signals a heightened risk to potential lenders, suggesting a history of payment issues or defaulted accounts. Such trades can significantly affect a consumer’s ability to secure new loans, credit cards, or housing.

Understanding a Derogatory Trade

A derogatory trade, also known as a derogatory mark, is a negative notation on a consumer’s credit report. This entry reflects a failure to adhere to credit agreement terms, such as making payments on time or repaying a debt. The term “trade” refers to a tradeline, an account reported to credit bureaus detailing an individual’s credit activities. These entries warn financial institutions that the consumer may represent a higher credit risk.

Lenders review an applicant’s credit report to assess financial reliability. Derogatory trades provide evidence of past financial mismanagement or hardship. This information helps lenders determine the likelihood of future repayment, influencing credit approval and terms. These entries maintain transparency and accuracy in credit reporting, allowing lenders to make informed lending decisions.

Common Types of Derogatory Trades

Derogatory trades stem from various forms of financial non-compliance. Late payments, or delinquencies, are frequent. These occur when a payment is not made by its due date, with reporting typically beginning at 30, 60, or 90 days past due. Impact severity increases with delinquency length.

Collection accounts represent debts an original creditor sold or assigned to a third-party collection agency due to non-payment. This typically happens after significant, extended delinquency. A charge-off occurs when a creditor determines a debt is unlikely to be collected and writes it off as a loss, usually after 180 days of non-payment. While the original creditor no longer expects to collect, a collection agency may still pursue the debt.

Bankruptcies (Chapter 7 or Chapter 13) are legal proceedings where debts are discharged or restructured under court supervision. These are severe derogatory marks due to significant financial distress. Foreclosures involve a lender repossessing property (typically real estate) because the borrower failed to make mortgage payments. Repossessions are similar but apply to personal property (e.g., vehicles) seized due to unpaid loan obligations. Each entry provides a distinct negative signal regarding financial behavior and debt management.

Information Within a Derogatory Trade Entry

Each derogatory trade entry contains specific data points providing a comprehensive overview of the negative event. The creditor’s name is included, identifying the entity that reported the adverse information. An account number (often partially masked for security) links the derogatory mark to the specific financial obligation.

Key financial details are reported, such as the original balance and, if applicable, the current balance (particularly for collection accounts). The date opened or first delinquency date is crucial, determining how long the derogatory information remains on the report. The date of last activity indicates the most recent interaction or update. Account status specifies the derogatory mark’s nature: “charged off,” “in collection,” “foreclosed,” or “closed.” For late payments, the entry typically includes a payment history showing specific missed payment periods. These fields allow creditors to understand the precise nature and timeline of the financial difficulty.

Duration of Derogatory Information on Credit Reports

Derogatory information remains on a credit report for a length of time generally governed by the Fair Credit Reporting Act (FCRA). Most negative items (late payments, collection accounts, charge-offs) can be reported for up to seven years from the date of the first delinquency. This seven-year period provides a reasonable timeframe for past financial difficulties to impact credit standing.

Certain derogatory information has different reporting durations. Bankruptcies can remain on a credit report for a longer period: Chapter 7 typically stays for 10 years from filing, while Chapter 13 generally remains for seven years. Foreclosures and repossessions also typically stay on a report for seven years from the first missed payment that led to the action. The clock for these reporting periods generally starts from the initial delinquency date that led to the derogatory status, or the filing date for public records like bankruptcies. After these timeframes expire, derogatory information is automatically removed from the credit report.

Common Types of Derogatory Trades

Derogatory trades stem from various forms of financial non-compliance. Late payments, or delinquencies, are frequent, occurring when a payment is not made by its due date. Reporting typically begins at 30, 60, or 90 days past due, with impact severity increasing with delinquency length. Collection accounts represent debts an original creditor sold or assigned to a third-party collection agency due to non-payment, typically after significant, extended delinquency. A charge-off occurs when a creditor determines a debt is unlikely to be collected and writes it off as a loss, usually after 180 days of non-payment. While the original creditor no longer expects to collect, a collection agency may still pursue the debt.

Bankruptcies (Chapter 7 or Chapter 13) are legal proceedings where debts are discharged or restructured under court supervision, indicating significant financial distress. Foreclosures involve a lender repossessing property (typically real estate) because the borrower failed to make mortgage payments. Repossessions are similar but apply to personal property (e.g., vehicles) seized due to unpaid loan obligations. Civil judgments, court-ordered financial obligations, historically appeared on credit reports. However, since 2017 and 2018, major credit bureaus largely stopped including most civil judgment records due to stricter data standards. This change means that while a civil judgment is a legal matter, it is now less likely to be a direct derogatory trade on a consumer’s credit report. Each entry provides a distinct negative signal regarding financial behavior and debt management.

Information Within a Derogatory Trade Entry

A derogatory trade entry includes specific data points that provide a comprehensive overview of the negative event. This includes the creditor’s name, an account number (often partially masked for security), and key financial details like the original and current balance. The date opened or first delinquency date is crucial for determining how long the information remains on the report. The date of last activity indicates the most recent interaction. Account status specifies the derogatory mark’s nature, such as “charged off” or “in collection.” For late payments, a payment history shows missed periods. These fields allow creditors to understand the precise nature and timeline of the financial difficulty.

Duration of Derogatory Information on Credit Reports

The length of time derogatory information remains on a credit report is generally governed by the Fair Credit Reporting Act (FCRA). Most negative items, such as late payments, collection accounts, and charge-offs, can be reported for up to seven years from the date of the first delinquency. This seven-year period provides a reasonable timeframe for past financial difficulties to impact credit standing. Certain derogatory information has different reporting durations. Bankruptcies can remain on a credit report for a longer period; a Chapter 7 bankruptcy typically stays for 10 years from the filing date, while a Chapter 13 bankruptcy generally remains for seven years from the filing date. Foreclosures and repossessions also typically stay on a report for seven years from the first missed payment that led to the action. Unpaid tax liens (if reported) and civil judgments previously remained on reports for varying lengths, sometimes indefinitely if unpaid, but major credit bureaus stopped including tax liens and most civil judgments on credit reports by April 2018 due to stricter data standards. The clock for these reporting periods generally starts from the initial delinquency date that led to the derogatory status, or the filing date for public records like bankruptcies. After these timeframes expire, derogatory information is automatically removed from the credit report.