A key derogatory is an account that seriously hurts your credit report and credit score. The term "derogatory" applies to accounts that are past due for more than 180 days; otherwise, it's worse than ordinary overdue accounts which are just "delinquent." Key derogatory items arise from a variety of events, including a failure to pay a bill, bankruptcies, tax liens, court judgments, collections, foreclosures and repossessions.
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A credit report is a history of your credit-related activity, including credit card debt, mortgages, car loans and other borrowings. The U.S. has three major credit bureaus — Experian, Equifax and TransUnion — that issue credit reports. These reports include the status of your credit accounts, bill repayment history, available credit, income and any current bill collection activity. Each bureau also calculates and reports a FICO score, which is a number between 300 and 850 that summarizes the information on the credit report. Lenders use credit reports and FICO scores to help determine how much, if any, credit to offer you and what interest rate to charge.
Lingering Derogatory Information
Key derogatory information — including late payments, Chapter 13 bankruptcies, foreclosures, collections and tax liens — can remain on your credit report for seven years. A Chapter 7 bankruptcy will continue to be reported for 10 years, and unpaid tax liens can remain indefinitely. You can't remove a legitimate derogatory from your report until the required time expires. Although key derogatory information hurts your FICO score, the damage moderates over time, allowing your credit score to slowly recover, although the speed of recovery is up to the credit bureau. The sudden appearance of key derogatory information on an otherwise spotless credit report can cause a deep drop in your FICO score, whereas the effect is far less dramatic if you already have many negative items on your report.
Disputing a Derogatory Item
It's in your best interests to ensure that your credit reports contain complete, accurate and timely information so your credit score doesn't needlessly suffer. To repair errors, write a dispute letter to the credit bureau in which you identify yourself, explain and document the facts under dispute and request a correction. The bureau must investigate your claims by working with the source of the disputed information, such as your credit card company. Within 30 days, you should receive the results and, if your claim is upheld, a new credit report. The bureau must forward any corrections to the other credit bureaus and, upon your request, to anyone who received your credit report in the last six months.
Perseverance Is Key
If the credit bureau fails to resolve the dispute in your favor, ask the bureau to include a dispute statement in your report and to send out new copies of the updated report to recent recipients. Also send a dispute letter to the company you are challenging and include copies of all relevant documents. The company must inform the credit bureau about the dispute. If the company decides you are right, it must contact the credit bureau and direct it to correct or delete the derogatory item from your credit report. If the mistaken derogatory was an isolated case, you should see your FICO score recover right away.