Many kinds of entries on a credit report can lower your credit score, but some are much more harmful than others. The entries that do the most damage and that tend to keep your score down for extended periods of time are what lenders call derogatory events—or just plain bad ones. (For a refresher on credit reports and how they are organized, see our Anatomy of a Credit Report series.)
Lenders view derogatory credit-report entries as evidence of mismanaged debt. That is why credit-scoring models typically treat them as grounds for steep, long-lasting score reductions. That is also why you should avoid them at all costs. This four-part series of articles is designed to help you “steer clear” of derogatory events, examining them in detail so you know what to avoid—and what the consequences could be if you don’t. We’ll cover the three categories of information that can be considered derogatory: The first part examined public records. This installment looks at credit-report narratives, and part 3 and part 4 will look at the somewhat complicated topic of non-performing trade lines—a fancy term for accounts that aren’t being paid as agreed.
By John Ulzheimer
The Ulzheimer Group
When we’re talking about credit reports, what do we mean by narrative? That’s a good question because consumers seldom use this term to describe the entries on their own credit reports. But the term is widely used in the credit reporting world. Nearly all credit reports contain narratives, and they are usually no cause for worry. Narratives are simply text entries on credit reports that describe various accounts, collections and/or public records. Sometimes they appear under a heading of “remarks” or “comments.”
The following is an example of a narrative associated with the credit-report entry for a credit card account, which is not considered derogatory:
The narrative “Account closed at credit grantor’s request” was added by the card issuer to let future viewers of this credit report know that:
- the account is closed; and
- the issuer was the one who closed it. (In this particular case, the issuer discontinued that card program and closed the account.)
This is an example of the majority of narratives, which are neutral descriptions used for “housekeeping” purposes within a credit report. There are, however, a number or narratives that are considered to be derogatory by credit scoring models and can correlate with lower scores. The list includes:
Foreclosure or Foreclosure Completed
Foreclosure Process Started
Forfeiture of Deed in Lieu of Foreclosure
Repossession
Redeemed Repossession
Voluntary Repossession
Charge Off
Paid Charge Off
Account Included in Bankruptcy
Settlement Accepted on This Account
Account Assigned to Internal or External Collections
Account Currently 30 days past due (or 60, 90, 120, 150 or 180 days past due)
Almost 100 percent of the time, these derogatory narratives are added by either the creditor or the national credit reporting company (Equifax, Experian or TransUnion) that compiled the credit report. Each of the listed narratives is considered a major derogatory item. That means there’s a real possibility that the above narratives will result in lower credit scores (and in most cases, considerably lower credit scores).
If you have any of these narrative statements on your credit report, and feel they are incorrect, you have the right to challenge the information with the CRCs. When you do so, the Credit Reporting Company (CRC) will contact the furnisher of the information to verify whether or not the narrative is accurate. If a narrative is accurate, then it will remain on your credit reports. If it is inaccurate, it will be removed.