What Is a Derogatory Account?

Your credit report contains information about your currently active credit accounts as well as accounts you held in the past. When your creditors notify the credit reporting agencies about negative information related to your management of a particular account, credit bureaus notate that information on your credit file. Accounts on which negative information exists are commonly referred to as derogatory accounts.

Credit Bureaus

The three credit reporting bureaus, Equifax, Experian and TransUnion, all use different formulas for calculating your credit score and produce credit reports that contain the same general information but presented in a different format. However, each bureau's credit report template specifies the number of derogatory accounts that you have listed on your report. When you apply for a new credit account, the lender can decline your loan application based upon the number of derogatory accounts you have.

Derogatory Accounts

Derogatory accounts take many forms but range from mortgages that ended up going into foreclosure to credit cards on which you made one late payment. Late payments are only listed on your credit report if you fall more than 30 days behind on your payments. Several late payments have a less damaging effect on your credit score than a major event like a car repossession or foreclosure. Other derogatory accounts you may see on your credit report include overdrawn deposit accounts that you failed to settle.

History

A derogatory account typically stays in your credit report for up to seven years. Bankruptcies are not technically accounts but are still classified as negative credit events and can remain on your credit report for up to 10 years. However, credit scores are more tilted toward recent events than past account history. Therefore, while derogatory accounts continue to appear on your credit report for many years, how you manage your active accounts has more of an impact on your credit score.

Errors

On occasions, credit reporting agencies receive inaccurate information from creditors and data collecting agencies. When you are declined for credit based upon derogatory information listed on your credit report, you are entitled to obtain a free copy of that report. You must submit your request for a copy of your report within 60 days of being denied credit. Upon reviewing the report you have the right to contest any inaccurate information related to derogatory accounts on your report. Credit bureaus must respond to correspondence relating to credit reporting inaccuracies within 30 days of receiving your complaint and take steps to rectify your credit report.