Understanding negative information on your credit report (and how it gets there)
While no one ever plans to miss a credit card (or other) payment, sometimes we find ourselves in challenging financial situations. When you are living paycheck-to-paycheck — as millions of people are — it can be difficult to make your monthly earnings last until the next direct deposit. And when tough times descend, some people can end up paying a bill more than a month late, or worse, not paying a bill for several months, or at all.
While it’s likely little comfort, millions of people have found themselves in similar situations in recent years.
In 2021, some 64 million people with a credit record (which equates to roughly 28% of adults in the U.S.) had debt in collections on their credit report, according to the Urban Institute. For reference, that number was down from 68 million people in 2019, before the pandemic.
Unfortunately, it doesn’t take long for a missed payment of more than 30 days to damage your credit score and show up on your credit report, where it will likely sit for up to seven years. When reviewing your credit report, (which you should do at least once a year, by the way) you may see a couple of different terms that may seem similar. But make no mistake, when it comes to the terms ‘delinquency’ and ‘derogatory,’ there are key differences you should be aware of.
What’s a Delinquency?
Being more than 30 days late is called delinquency. It usually triggers a series of events that leads to negative information being added to your credit report. When you are more than a month late with a payment, you can land in the delinquency zone, so to speak, and that late payment will typically be reported to at least one of the three major credit reporting agencies – Experian, Equifax, or TransUnion. (Besides the black mark on your report, you’ll likely also have a late fee added to your balance for the missed payment and your credit score will take a hit.)
What’s a Derogatory Payment?
Things can go downhill fast if you are unable to pay a bill for 90 days or longer. That’s when your lender could do what’s known as a charge-off, where — depending on the amount of the loan — they send the debt to a collection agency. They could also take legal action against you. These severe delinquencies can lead to what are called derogatory marks on your credit report. These also stay on the document for seven to 10 years, making lenders much less likely to allow you to borrow money at favorable rates or to qualify to rent an apartment.
Other financial issues that lead to derogatory marks (or the label of a derogatory payment on a credit report) include bankruptcies, foreclosures on property, repossession of a vehicle, or defaulting on a student loan.
Do You Have Negative Information on Your Credit Report?
If you aren’t sure if you have delinquencies or other negative information on your credit report, you can pull a report for free, once a year, from each of the three major credit reporting agencies mentioned above at AnnualCreditReport.com or more frequently via Savvy Money.
Verify Correct Information
It’s important to check the document carefully to make sure everything is correct, including the spelling of your name, your address, your employer, and all of the accounts listed. If you find mistakes, you should report them right away. The Consumer Financial Protection Bureau offers a guide for reporting credit report errors and even offers sample letters to help you get started.
How to Get Help
If you find yourself in deep debt, there are measures you can take to start digging yourself out:
- Call your credit card companies and other lenders to see if you can restructure your payments. If you are experiencing a hardship such as a job loss, let them know.
- Depending on your circumstances, you may also qualify for a debt consolidation loan.
- Credit counseling agencies may be able to assist you in reducing high-interest rates. The National Foundation for Credit Counseling at NFCC.org is a good resource for finding a counselor in your area.
Jean Chatzky
SavvyMoney Blog