What Is a Derogatory Account?

A derogatory account is a credit account that has serious negative information attached to it.

This can happen after missed payments, default, collections or another major repayment issue. A derogatory account can lower your credit score and make it harder to qualify for new credit.

KOHO Credit Builder

KOHO Credit Builder is designed to help Canadians establish or build their credit history through consistent monthly payments, without relying on a traditional credit card.

With KOHO Credit Builder, you can:

• +74 points average credit score increase seen using our credit building tools*

• Get approved without a hard credit check or minimum deposit

• Pay no interest on the line of credit

• Track your credit score and credit report directly in the KOHO app

• Build your credit history with monthly payments reported to the credit bureaus

What Makes an Account Derogatory?

An account may be considered derogatory if it shows serious negative payment activity.

Examples include:

• Repeated late payments

• Missed payments

• Default

• Collections

• Charge-offs

• Bankruptcy-related accounts

• Consumer proposal-related accounts

The exact wording can vary between credit bureaus and credit reports.

How Does a Derogatory Account Affect Your Credit?

A derogatory account can hurt your credit because lenders use your payment history to assess risk.

The impact depends on:

• How serious the issue was

• How recent it is

• Whether the account is still unpaid

• How many negative accounts you have

• The rest of your credit history

Recent or repeated payment problems can have a larger impact than older issues.

Is a Derogatory Account the Same as a Collection Account?

Not always.

A collection account is one type of derogatory account.

An account can become derogatory before it reaches collections. For example, several missed payments may already result in negative reporting.

Can You Remove a Derogatory Account?

You generally cannot remove accurate negative information simply because it hurts your credit.

If the account contains incorrect information, you can dispute it with the credit bureau.

Check for issues such as:

• An account that is not yours

• Incorrect payment history

• An incorrect balance

• An account shown as unpaid after you paid it

Can Paying a Derogatory Account Help?

Paying an outstanding account can improve your overall financial position and prevent the debt from continuing to grow.

It does not necessarily remove the derogatory history immediately.

The account may remain on your credit report for a period of time even after it is paid.

Can You Rebuild Credit After a Derogatory Account?

Yes.

Focus on adding positive information to your credit history.

That means:

• Making payments on time

• Keeping balances low

• Paying down outstanding debt

• Avoiding unnecessary new credit applications

• Checking your credit report for errors

A derogatory account can affect your credit for years, but it does not mean your credit score cannot improve.

What Should You Do If You Have a Derogatory Account?

First, review the account carefully.

Confirm:

1. The account belongs to you

2. The reported balance is correct

3. The payment history is accurate

4. Whether money is still owed

Dispute incorrect information. If the account is accurate, deal with any outstanding debt and focus on building positive payment history going forward.

A derogatory account is ultimately a sign that a credit account had serious repayment problems. The best response is to make sure the information is accurate and prevent new negative information from being added.

*Based on users with a starting score of 450 or under and who used all of our credit building tools (i.e. Credit Building, Secured Credit Building) for 12+ months with on time payments. Credit building tools we offer are not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.