How to Clear Up Derogatory Credit

Having derogatory marks on your credit report can be frustrating. Notices of late payments, delinquent accounts and other less-than-flattering financial instances can lower your credit score and make it more difficult to get a loan and a competitive interest rate. Simply paying off past-due debts doesn't erase the instances from your credit report, but is definitely the first step toward starting over. Changing your current financial behaviors to ensure that you pay bills on time is a good step to avoid any new derogatory marks on your credit report, but if you do have bad credit, there are ways you can clean it up and get back on track.

You can request a free copy of your credit report from any of the three reporting agencies at annualcreditreport.com, or from the individual agencies' websites. You're entitled to a free look once per year. Once you have a copy, review your credit report to identify delinquent accounts and other derogatory credit items, and check for mistakes. It’s fairly common for creditors to mistakenly list the same delinquent account on your credit report multiple times. Recently, CNBC reported that 74 percent of the complaints received by the Consumer Financial Protection Bureau were for errors and inaccuracies in credit reporting. Reviewing your report can also bring to your attention any accounts that aren't yours; if someone steals your identity and opens accounts in your name, these will appear on your credit report, and they could affect your credit.

The major credit reporting bureaus have dispute submission forms on their websites. You can select an item on your report and mark it disputed, giving a reason for the dispute and attaching any supporting documents. For example, if a creditor has listed an account twice, or if an account is listed as delinquent when it is not delinquent, you should dispute that item. You can also dispute any items that may be on your report if you were a victim of identity theft or credit card fraud, or even small things, such as an incorrect address, name or employer. If you do dispute any items, you should hear back within 30 days; follow up if you don't get a response.

If you have delinquent accounts that are accurately represented on the credit report, do your best to pay the balances down, or pay them in full if you can. Start with the most recent accounts and work your way back, as the current charges have the greatest impact on your credit score. If you’re planning to apply for a loan in the near future, it may actually be best to wait to pay off older debts until after you’ve received the loan, as this turns them into a current collection. Collection accounts commonly report once the account is created and then never again, so when you pay it off the debt, the account reports current information again. While having a balance paid in full is positive, it's not so great that an old collection is reporting as a current collection.

Keep paying your bills on time to boost your credit score. Derogatory marks typically stay on your credit report for seven years. Fortunately, positive information, such as paying bills on time, can affect your credit forever and can even help you repair bad credit. Your credit score increases as your regular, on time payments continue, even if you've had derogatory items on your report in the past, such as bankruptcies or judgments.