Islam uses the Arabic term to collectively reflect on those who do not believe in the oneness of Allah ( The Greatest and ever merciful ). Its only a definition and is not meant to be derogatory in any sense. In fact all religions use some of these terms..for example Bible uses "Gentile" . Any one who professes his faith in Allah is a Muslim. Any one who associates partners with Allah ( thats belives anyone or anything else has powers to affect any event ) is a Mushrik for example it would be applicable to Hindusim or Sikhs or Buddhists etc for definition purposes. Anyone who professes a faith but does not belive in it is a Munafiq ( thats discarder / hypocrite )
So you see the point .. these are all definitions .. like any other language . However the comonality lies in the fact that all over the world muslims profess the same faith .. they essentially pray in the same manner .. at apponited times of the day and in one common language ...Arabic .. the language of the Glorious Quran..
As for the "Kafirs" is concerened the Quran says
" we dont believe in what you belive and you dont believe in what we believe .. To you is your religion and to us is our religion"
Further Prophet Muhammad ( PBUH ) Says Their is no compulsion in matters of religion
Islam is a religion of peace and fairness regardless of what you may belive .. See for your self..Get a copy of the quran or its commenatry for yourself and read for your self how Islam dignifies Humans
May Allah show you the light and make me a partner for all your good deeds