Whether you’re surprised to see them or knew they were there, it’s never fun to see derogatory items on your credit reports. From collections accounts to charge-offs to late payments to bankruptcies, these items can cause a hit on your credit scores that can last for years. So, what can you do about it?
The options you have when it comes to removing these negative items from your credit reports vary based on your specific situation. Here are a few different paths you can take when dealing with derogatory items on your credit report.
What You Should Know About Derogatory Items On Credit Reports
Before digging into how to remove derogatory items from your credit reports, it’s important to understand a few basic facts:
- You have three credit reports — one from each credit reporting company — so, if you intend to file a dispute, you’ll have to file it with the credit reporting company showing the derogatory item
- Filing a dispute can only work if the derogatory item is inaccurate in some way (either the details about it or the item itself)
- Each type of item on a credit report can stay there for a designated period of time, which means an accurate derogatory item will have to either be dealt with or waited out
- If you tried to file a dispute and it didn’t work, filing the same dispute again without additional evidence could lead to the dispute being deemed “frivolous,” which will put the investigation to an end
Now that those basic facts have been cleared up, let’s talk about how you might handle different types of derogatory items on your credit report.
Ask Yourself Three Questions to Learn How to Remove Derogatory Items From Your Credit Reports
To understand what you can do about derogatory items on your credit reports, start by asking yourself the following questions. What to do about these derogatory items will depend on your answers.
1. Is the Derogatory Item Accurate?
If the item is inaccurate, or if it is yours but contains erroneous information, dispute it immediately with the credit reporting company showing it. (If you see this on more than one of your credit reports, you’ll have to do a separate dispute with each credit reporting company showing the error.)
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If the item is accurate, filing a dispute won’t work as the item is supposed to be on your report for a designated period of time. Here’s how long derogatory items can stay on your credit report:
- A Chapter 7 bankruptcy stays on your report for 10 years; a Chapter 13 bankruptcy stays for seven years
- Charged off accounts stay on your credit report for seven years
- Collections accounts stay on your credit report for seven years starting from the time that the original account that was sold to collections became delinquent
- Late payments stay on your credit report for seven years
- Civil judgments and tax liens no longer show up on credit reports
2. What Type of Derogatory Item Is It?
There are derogatory items that can be dealt with if they’re accurate, and there are some that can’t. Late payments and bankruptcy can’t be removed from your credit reports if they’re accurate. Plus, there isn’t really any action you can take to change the information about them. These are closed items from the past, not continuing items, and your only real option is to wait them out.
You can potentially solve the issue of an accurate collections account, however, by dealing with it directly. That means getting in touch with the debt collector to arrange a payment plan or settle the debt. Resolving the debt won’t remove it from your credit report. But it can get you closer to it being marked as “paid,” which is a positive sign for future lenders.
It’s worth noting that settling the debt might not be viewed quite as positively by lenders as paying it off. Settled debt will be marked on your reports as such, and it shows the lender that you ended up paying less than you owed. That said, if you have a lump sum of money you can use to settle the debt, it could help you resolve the collections account faster than paying it down over several months or years via payment plan.
3. How Old Is the Derogatory Item?
Finally, look at the age of the derogatory item. There are two age factors that could play into what you can do next. One is how long negative items remain on your credit report, and the other is the statute of limitations on debt.
As described above, each derogatory item has to stay on your credit reports for a certain number of years. If your derogatory item is getting pretty close to that time frame, such as a collections account that’s almost seven years old, then you might not have to do anything. You could, if you want, wait for it to fall off your reports.
Also, most debts are subject to a statute of limitations. A statute of limitations is basically a deadline for a creditor to file a collection action. Once the statute of limitations has expired, the debt is referred to as “time-barred,” after which you might not have to repay the debt.
Not all debt is subject to a statute of limitations (federal student loans are exempt, for example). State law generally determines whether a statute of limitations applies, and if so, how long a creditor has to file a lawsuit.
That said, just because a debt has become time-barred doesn’t mean it will fall off your credit reports. Therefore, waiting out the statute of limitations on debt won’t guarantee the removal of that item from your reports. If a debt is considered time-barred after six years, for example, it still has to show up on your report for one more year per the requirements of how long each item remains on your report.
A Quick Note About “Pay for Delete”
Some people might advise a tactic called “pay for delete” to remove accurate collections accounts from credit reports. This tactic basically means you’d try to negotiate with your collections agency to have them remove the account from your credit report. In theory, it sounds easy enough, but it might not work out in practice.
First of all, pay for delete doesn’t line up with the requirements of credit reporting, which are that credit reports have to be a fair and accurate representation of your credit history. Since certain items are supposed to remain on your reports for a designated amount of time, it’s not exactly legal for the creditor to try to have them removed sooner.
Besides that, creditors send data that’s used to populate your credit reports, but the credit reporting companies generate the reports. The onus is on them to ensure the accuracy of your report, and they don’t have any legal reason to comply with a pay for delete agreement. In the end, it might be best to pay the debt because you want it cleared up, not because you hope it’ll then get removed from your reports.
Derogatory Items Might Not Be As Damaging to Your Credit Reports As You Think
If you’re in a situation in which you can’t dispute a derogatory item because it’s accurate, and you’re not able to have it removed or changed due to its type or the inability to repay it, know that not all hope is not lost. Both of the major credit scoring companies (FICO® and VantageScore®) say that the effect of negative items on your credit can diminish over time.
Here’s what FICO® has to say about it:
“Past credit problems fade as time passes and as recent good payment patterns show up on your credit report. Unlike so-called ‘knock out rules’ that turn down borrowers based solely on a past problem in their file, credit scoring weighs all of the credit-related information, both good and bad, in your credit report.”
And here’s what VantageScore® has to say about it:
“The impact that negative information will have on your credit score may diminish over time because your credit history is weighted less as it ages.”
So, as you can see here, derogatory items on your credit report can be deeply frustrating, but they don’t have to spell bad credit for the next several years. The most important thing is to make sure that mistakes on your credit report aren’t needlessly hurting your credit scores, and then to do whatever is reasonably within your ability to handle the accurate derogatory items.
As you work to improve your credit through positive steps like making payments on time and decreasing debt, the negative effects of the derogatory items will go down as the positive effects of your current behavior help to improve your scores.
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