How to Remove Derogatory Items From Your Credit Report

If you’re wondering why you can’t get approved for a credit card 💳after all these years, you might have a derogatory mark on your credit report.

Derogatory marks appear on your credit report because you have unpaid balances with your creditors. These items are seen as red flags by prospective lenders who might consider you a credit risk.

Here are eight examples of derogatory marks:

• Missed payments of 30 days or more
• Account charge-offs
• Repossessions
• Property Foreclosures
• Bankruptcy filings
• Account collections
• Student loan delinquency
• Debt settlement

A derogatory mark can lower your credit score by 100 points and stay on your credit report for seven to 10 years.

Can You Remove Derogatory Items From Your Credit Report?

Yes.

If the derogatory mark is invalid or inaccurate, you can have it removed from your credit report by filing a dispute with the credit bureaus: Experian, TransUnion, and Equifax.

If the derogatory mark is valid or accurate, you’ll have to negotiate with the creditor to have it removed from your credit report.

Some of the negotiating tactics you can employ include:

• Negotiating a settlement price
• Proposing a payment schedule
• Filing an appeal via a Goodwill Letter

💡Note: You can only remove inaccurate debt from your credit report.

Thus, if you successfully negotiate a settlement with the creditor for accurately reported debt, it might still appear on your credit report. If this happens, you’ll just have to wait it out until the item is removed from your report which might take seven to 10 years.

A Step-by-Step Guide on How to Remove Derogatory Items on Your Credit Report

Follow our step-by-step guide on how to remove derogatory items from your credit report.

Step 1: Check Your Credit Report for Inaccuracies

According to a 2021 study by Consumer Reports, 34% of consumers found errors in their credit reports. At the minimum, you should get a copy of your credit report once a year.

The three major credit bureaus: Experian, TransUnion, and Equifax can provide you with a weekly copy of your credit report. You can also get it from AnnualCreditReport.com.

Once you have your credit report, check for inaccuracies.

If you come across a potential erroneous entry, get the information, and cross-check with your records to verify if the account is paid.

Step 2: File a Dispute

If you find debt that was inaccurately reported, send a dispute letter to the credit bureaus.

The addresses of the credit bureaus are as follows:

• Experian

P.O. Box 4500
Allen, TX 75013, USA

• TransUnion

P.O. Box 105283
Atlanta, GA 30348-5283 USA

• Equifax

P.O. Box 740256
Atlanta, GA 30374-0256

You can use the template created by the Consumer Financial Protection Bureau (CFPB) to prepare your dispute letter.

In your dispute letter, include relevant documents such as receipts, bank statements, and credit card statements that support your claim.

The credit bureaus have 30 days to investigate your claim.

They will instruct the creditor who reported the debt to conduct an investigation. The credit bureaus will notify you in writing about the result of the investigation.

If the investigation proves the debt was inaccurate, the credit bureaus will remove it from your report. 

Step 3: Negotiate with the Creditor

If the investigation shows the debt was accurately reported, you’ll have to negotiate with the creditor.

Prepare the following documents before you meet with the creditor:

• Bank statements in the last six months.
• Financial statements: Cash flow, income statement, and balance sheet.

These documents can support a claim that financial hardship made it hard for you to settle outstanding debts.

1. Negotiate a Settlement Price

Review the breakdown of the unpaid debt and check if the total amount includes penalty and interest charges.

• Ask the creditor if these charges can be removed.
• Ask for an additional discount.
• Inform the creditor that if you agree on a settlement price, you’ll pay the full amount in lump-sum.
• If an agreement is reached, ask the creditor if they can remove the debt from your credit report.
• Put the details of the agreement in writing and have the creditor sign it.

2. Propose a Payment Plan

If your cash flow is tight, propose a payment plan.

• Present your 6 months’ bank statements and financials to show the creditor that scheduled payments are the best way to settle your debt.
• Expect the creditor to counter with a shorter payment period. Inform the creditor that you can comply with a shorter payment schedule only if the debt is reduced.

Negotiation is a back-and-forth process. It’s not realistic to expect you’ll get everything you want. Your goal is to get the creditor to reduce the cost of the debt. If you can achieve this, the negotiation is a success.

3. Appeal with a Goodwill Letter

If negotiations for a settlement price and a payment plan fall through, your final option would be to appeal to the creditor with a Goodwill Letter.

A Goodwill Letter explains the circumstances that made it difficult for you to pay the debt.

For example, you became seriously ill, lost your job, and it took time before you could actively look for employment again.

Include documents that support your claim.  In our previous example, relevant supporting documents include bank statements, a copy of the termination letter, and a medical report.

💡Note: The creditor is required by the Fair Credit Reporting Act (FCRA) to report accurate debt to the credit bureaus. Thus, even if the creditor agrees to your terms, they can still report your unpaid debt.

What Happens If Negotiations With the Creditor Fall Through?

If negotiations with the creditor fall through, and depending on the type of derogatory mark, they could sue you in court.

If the court rules in favor of the creditor, your wages and savings could be garnished as payment for the debt.

A court hearing can be expensive. You have to hire a lawyer and pay for court filings. The cost of legal proceedings will worsen your financial situation.

For this reason, have a flexible mindset when you’re negotiating with the creditor. Even if you don’t get the settlement price you want, it’s still a better deal than getting dragged into court.

How Long Does It Take to Remove Derogatory Items From Your Credit Report?

Please refer to the table below to have an idea of the time it takes for accurate debt to fall out of your credit report.

💡Note: If your debt remains unpaid after it’s removed from the credit report, but it’s within the statute of limitations of your state, you’re still liable for it. The creditor can still go after you.

How to Avoid Derogatory Marks in Your Credit Report

Derogatory marks are viewed by creditors as signs of financial instability. That might not always be the case.

We’re human and sometimes we just forget to pay the bills.

According to Experian, on average, a consumer owns four credit cards. A 2024 survey by Forbes and OnePoll showed that a household is subscribed to at least one streaming service.

Add to the mix bills for utility services, phone and Internet, gasoline, groceries, and transportation, and it’s easy to understand why payments can be overlooked.

Avoiding derogatory marks on your credit report comes down to applying smart money management practices:

• Keep track of your bills’ due dates.
• Pay your bills on time.
• Cancel unused subscriptions
• Limit your credit card spending.
• Don’t spend more than what you can afford.

Lastly, save consistently. Try to deposit at least 20% of your salary to a high-yield savings account.

Related article: What Does Credco On Your Credit Report Mean?

Summary

Get a copy of your credit report at least once a year and look for derogatory items. Send a dispute letter to the three credit bureaus if you see inaccurately reported debt. If the debt is invalid, the credit bureaus will remove it from your credit report.

If the derogatory mark is valid, you have to negotiate directly with the creditor to have it removed. Try negotiating for a reduced settlement amount or a payment schedule. Your final option would be to send a Goodwill Letter and hope for understanding.

The derogatory mark can stay on your credit report for seven to 10 years.

Keep derogatory marks off your credit report with Cushion.

Cushion has features that help you maintain smart money management practices:

• Track your bills.
• Schedule them for payment on Google Calendar.
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• Send a payment report to the credit bureaus.
• Analyze your spending habits.

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