What You Need to Know About Derogatory Credit Marks

Nobody wants derogatory credit marks on their credit report but unfortunately, it’s sometimes what consumers are left to deal with. Whether you’ll actually see an impact on your credit from those marks or not is dependent on their age and recency. Derogatory marks are typically visible on your credit report for up to 7 years but they might not necessarily affect your credit score, depending on their age. It also depends on the lender and what scoring model they are using to qualify you for regarding a given credit opportunity. In some instances, derogatory marks can stay on your credit report for up to 7 years (after which they’ll simply fall off the credit report). However, the negative impact they have on your credit becomes essentially null after 2 years. This is currently the case with any credit reporting uses FICO 9.0 or later. If you have an account in collections which you settled and satisfied after the fact, that account will no longer negatively impact your credit score. Note there is a difference between your credit score and credit report. Under FICO 9 guidelines, the same goes for medical debt. The impact from negative or unpaid medical debt has become much less significant since there is such a high abundance of medical debt in the US.

Different FICO Scoring Models

Most lenders today still use FICO 8.0, however many have transitioned to FICO 9 and very few lenders have opted into using the more recently released FICO 10. Whatever the case, you ultimately won’t be in control of what scoring model is using since this is dependent upon the lender’s discretion. But you can always prepare with the knowledge at hand to make your credit worthiness as high as possible regardless of which scoring model is used. A long-term mindset and proactive is key to success and if you maintain a diverse credit portfolio and look towards keeping a low utilization rate, the odds are you’ll have a good credit score in the long term.

How to Maintain Good Credit

Maintaining good credit is an important part of any consumer’s financial consideration. You should always try to maintain good payment history and a good utilization rate whenever possible since this accounts for a bulk of your credit score. Otherwise, it’s important to have a diverse credit portfolio and long standing and well-established lines of credit. If you have all the above characteristics, the odds are strongly in your favor for having great credit. If you don’t, you can consider applying for a secured credit card or a credit builder loan. These secured options will help you both build and maintain good credit in the longer term.

All in all, derogatory credit marks are unfortunate but they aren’t the end of your credit. Taking positive steps towards building and maintaining good credit with the above will help offset the negatives associated with those marks. Every time you make a timely payment and every month that passes where those missed payments are further in the past, you move a step ahead in terms of achieving good credit.