As much as you might hate it, good credit is necessary to have if you ever want to make a large purchase.

If you ever hope to own your own car, house or even expensive electronic devices, the odds are that you are going to have to get some sort of line of credit in order to be able to afford it. The average person just doesn't have thousands of dollars in cash to drop on these purchases.

If you apply for a line of credit from a bank, credit card company or other lending institution and are declined, you'll probably be confused and angry. Especially, if the result of your credit check shows derogatory credit, you'll need to know what that means in order to deal with it.

If your credit check shows that you have derogatory credit, you may have an opportunity to explain why it appears on your report. Most negative credit of this type occurs when you have allowed a loan to go unpaid for a significant amount of time, usually resulting in the debt being turned over to a collection agency.

Keep in mind that financial contracts and debts of all kinds can contribute to this type of result, included apartment leases, unpaid utility bills, and late student loan payments. Most creditors will be able to find out the situation behind the negative credit all on their own, but if you are asked to provide an explanation yourself, there are a few things that you should keep in mind.

First of all, you should provide written confirmation of the exact situation from the lender that is reporting your derogatory credit.

This should be written as a formal letter and should contain some if not all of the following types of information: an honest acknowledgement of the personal and financial situation that caused the lapse in payment to occur, a statement of the extenuating circumstances that were out of your control, an honest statement of how your situation has changed now and what you will do in the future to be different in terms of payments.

There are a few things that you shouldn't do when you're working on your explanation of why you have derogatory credit. First of all, you should never deny that a negative record of credit is yours or try to claim that you are not responsible for negative credit. Honesty is always the best policy.

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