Derogatory Information: What It is, How It Works

What is Derogatory Information?

Derogatory information is negative information on a person's credit report which can be used to turn down a loan application. Derogatory information can refer to a variety of items reported to the credit bureaus from credit card companies, lending institutions, and mortgage providers.​​​​​​​

Understanding Derogatory Information

Derogatory information is any reported credit information that can be used to deny an individual a loan. As a general rule, derogatory information remains on a person's credit report for seven years. However, there are exceptions, including bankruptcies, after which derogatory information may remain for 10 years.

The most common form of derogatory information is late payments. A creditor can report a payment late at 30 days past due, and then increase every additional 30 days as the delinquency continues.  

Collections are another kind of derogatory information. After an account passes 120 days overdue, a creditor may sell it to a collections agency. This will add additional derogatory information to a credit report on top of the already reported late payments. ​​​​​​​Foreclosures are another form of derogatory information on an individual's credit report. Foreclosure refers to the legal process through which a lender seizes and sells property after an owner defaults. Derogatory information also includes bankruptcy, tax liens, loan and credit defaults, and civil judgments.

Derogatory information in a credit history can significantly impact your credit score, and make it difficult to get new lines of credit, get approved for a loan, or qualify to rent an apartment. Though some lenders may still extend a line of credit to an individual with derogatory information on their credit report, it may include higher interest rates or fees.

Consumer Rights, Fair Lending, and Derogatory Information

It is vital to review your credit report and look for errors. The record may still include expired derogatory information which needs removal. The Fair Credit Reporting Act (FCRA) provides the right to request one credit report from the reporting agencies at no charge each year. The top three credit bureaus are Equifax, TransUnion, and Experian.

Derogatory information appearing on a credit report relates to only legal reasons to limit or deny credit. The Equal Credit Opportunity Act (ECOA) of 1974 protects individuals from discrimination, stating creditors cannot consider a consumer's race, color, national origin, sex, religion or marital status in deciding whether to approve their credit application. Financial institutions also cannot deny credit based on age, nor because the applicant receives public assistance.

Example of Derogatory Information

Imagine that Jane defaulted on a vehicle loan. After many attempts by the creditor to get in touch with Jane about payment, they decide to put derogatory information on Jane's credit report. This negative information can cause Jane's score to drop and prevent her from getting favorable lending terms in the future.