Will Removing Derogatory Items From a Credit Report Improve My Credit?

Every consumer has credit records that lenders review before agreeing to new loans and accounts. Good credit records give consumers easy access to credit. Credit reports that contain "derogatory items" (i.e., evidence of financial mismanagement) cause problems. In some cases, it's possible to remove these derogatory items, so that they no longer influence credit decisions.

Credit Scores

Experian, Equifax and TransUnion are the three nationwide credit bureaus that compile consumer credit records. These records list accounts, payment histories, court judgments on financial matters, and related information. Credit score firms like FICO use these reports to generate a three-digit score that reflects a consumer's creditworthiness. Accounts that consumers use and pay responsibly look good on credit records and raise the score. Derogatory items lower the score, and may cause lenders to deny applications or charge higher interest rates.

Derogatory Items

Derogatory items on credit reports indicate financial mismanagement. They include delinquent or missed loan and credit card payments, accounts that are over the credit limit, charged-off balances, accounts in collections, house foreclosures, repossession of cars or other vehicles, and Chapter 7 or Chapter 13 bankruptcies. All of these things can damage a person's credit, according to FICO, but unpaid accounts and court actions are the worst.

Time Frame

Most derogatory items appear on credit reports for a limited time. Bankruptcies show up for ten years; most court actions, foreclosures, repossessions, late payments and unpaid accounts remain for seven years, after which their influence on the credit rating ends. Certain debts, like unpaid tax liens and student loans, stay on credit records and hurt the consumer's credit score indefinitely, although old items get less weight than current ones.

Removing Derogatory Items

Removing derogatory items improves your credit, because the items are no longer visible to lenders or included in your credit score. It's not legal to remove accurate negative entries, but it's possible to remove items that contain any sort of error. An inaccurate spelling, date or amount in an otherwise legitimate entry is disputable, and a consumer dispute requires the credit bureaus to conduct an investigation that may result in removal of the item. In some cases, lenders do not respond to such investigations, which also results in removal of the item. Annualcreditreport.com is a government website that provides free credit reports annually. By requesting a credit report from this site, you can find and dispute mistakes through each credit bureau.

Warning

The Federal Trade Commission notes that some "credit repair" firms claim to be able to remove all derogatory items from credit reports --- even if they are accurate --- or to create a new credit record for their clients. In reality, the credit bureaus can legally ignore groundless disputes, and it is illegal to create a new credit file using an Employer Identification Number. Using these tactics can get the consumer into serious trouble.