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letter of explanation for poor credit

i'm looking for advice on how to write a letter explaning poor credit problems.

lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Lenders like to hear that it was a temporary set back that won't happen again in the future. Even if that was for a couple years.

Here are my suggestions for good explanation letters so feel free to one of these in your letter

Medical expenses.
Sick family member needed help.
Had to help take care of a family member.

I would suggest that you use your reason for a set back. But if you need to use one of the above that should work fine. Also, add that the [url=http://www.mortgagefit.com/refinance.html]refinance[/url] will save you money, allowing you to get back on track. they like to hear that the new mortgage will allow you to do this.

Also want to note that unless you state something so awful in your letter like "I just didn't want to pay my bills", then it will be approved. This is just more of a formality and these letters are not scrutinized by underwriting.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

a1sundevilsfan2's picture
a1sundevilsfan2 | Joined: November 1, 2007 12:10 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Lisa is correct... Especially with FHA loans. At least this was the case in my situation.

This letter doesn't need to be a novel!!!! Something short and sweet will suffice...

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

chrisburns's picture
chrisburns | Joined: November 13, 2007 07:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Actually as far as FHA is concerned these letters are heavily scrutinized by FHA manual underwriters and can make the difference between approval and denial.

You want to have three parts to your letter of explenation:

1. something out of your control happened to you (Especially liked are medical issues, acts of nature, or something else a human being cannot control)
2. How did this affect you personally and financially
3. What did you do to correct the problem and what steps have you made to try to make sure it won't happen to you again.

These are the three main components you'll want to highlight in your letter. It's even better if you refrence account numbers and names in your letter directly. The more you explain the easier it is for the underwriter to approve your loan.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

michelle's picture
michelle | Joined: October 8, 2007 07:23 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome to the forum thompson7602,

I agree with the posters above. The letter should state the circumstances behind you falling behind and what you have done to overcome/correct the situation.

The key to writing the letter is to be honest about what happened. I have seen cases where a lender has asked for back-up documentation for the letter - proof of injury or sickness, job loss, etc.

Please let us know if we can answer any other questions for you.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

greg1's picture
greg1 | Joined: January 29, 2008 09:38 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Chris Burns is dead on!

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i agree with chris. one of the standards that is in place for many situations is that you would want to make your explanation heart-rending. if you can make the underwriter cry, you will likely get your approval.

beware of using medical situations as a reason if all your collections activity is credit-based. that won't hold water if you do.

essentially, you need to play on someone's heartstrings and be honest. in some cases, "young and foolish" will work, but not if you are 40 and the problems were recent.

i also agree, at least in part, that most of these credit explanation letters are not scrutinized; nor are they verifiable generally. the bottom line is that you need to state your case credibly and as eloquently as you are able.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

charles.armbruster's picture
charles.armbruster | Joined: October 12, 2006 04:26 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

When I know my client as well as I should, I write the letter of explanation for him/her and ask them to correct any impression or fact that is wrong or lacking -- I consider it my job to present the client in the best possible light without lying in any way. In fact, I received this good advice from a great FHA trainer I met long ago.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:37 | Post subject:

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