If you've recently applied for credit and got turned down, the prospective lender will send you a letter detailing why. Often the reason is that there was a derogatory public record on your credit report. A derogatory record is any negative information on your credit report that lowers your credit score. The record can be a minor issue like a few late payments or a more serious concern, such as bankruptcy. The only way to know exactly what appears on your credit report is to obtain a copy of it yourself and give it a look.
A derogatory public record is negative information on your credit report that is of a more serious nature and has become a matter of public record.
Derogatory Record Meaning
A derogatory record's meaning varies based on what type of record was found. If you make a few late payments to your credit card company and they report that information to the credit bureaus, a derogatory entry will appear on your credit report. A derogatory public record, however, usually means something more serious. A public record is information that literally anyone may obtain about you during a trip to the local courthouse. As such, derogatory public records usually consist of bankruptcy filings, civil court judgments, foreclosures and tax liens. In some states, child support delinquencies are also a matter of public record.
Where Derogatory Records Come From
Many of your creditors report your credit limit, current account balance and payment history directly to the three credit reporting agencies. As a result, even one late payment can show up on your credit report. Credit reporting agencies don't just rely on your creditors, however. Just as any individual can search through public legal records, so can the credit bureaus – and they do. Information about court judgments and property liens become part of your credit profile. Say, for example, that you borrow money from your cousin and are unable to repay him as agreed for some reason. He gets angry, sues you in small claims court and wins a judgment against you. Even if he doesn't contact the credit bureaus and try to report your debt, the liability will still appear on your credit file because the court proceeding is now a matter of public record.
Derogatory Record Impact
How much a derogatory record hurts you and your credit score depends on the record itself. If you made a late payment to a creditor but then got back on track, a derogatory remark about the late payment may appear on your credit but will have only a minimal impact. A serious delinquency, however, comes with serious consequences. If you go into foreclosure or file bankruptcy, you should expect potential creditors to take notice. Potential employers might too if they check your credit as part of the hiring process. This practice is common in the finance and accounting industries where your job may give you access to someone else's money.
Dealing With a Problem
You can't deal with a problem you don't know you have, so check your credit report often and perform a derogatory public record search on yourself. You'll probably know if a derogatory public record or collection was filed, but checking for yourself helps you catch mistakes. If you do find an error, contact the credit bureau right away to dispute the mistake and have it corrected. If you have a derogatory but accurate record, do your best to work around it. Add a letter of explanation to your credit file if you feel extenuating circumstances led to the problem. Get back on track with your payments and pay off your debts as quickly as possible to remove property liens and satisfy judgments. Prepare to pay higher down payments and interest rates when requesting credit with a derogatory record. Most will stay on your credit report for seven to 10 years, but negative records will eventually fade away. The more time passes, the less of an impact a derogatory record will have.