How to Write a Credit Letter if required
Once you have been pre-approved and find a house you want to buy, an underwriter may request that you write a letter to explain various items on your credit report. A well written credit letter will improve your chances of getting your loan application approved. Below are some suggestions to follow to make your credit explanation understandable.
1. Check for accuracy. Call each creditor and ask for a reference or credit history. This may show a better payment history than what is reported on the Credit Report. It is not enough to just say something is wrong with your Credit Report, you must prove it. Send any corrections to your Loan Processor to update your Credit Report.
2. Address the letter to your Loan Processor or Loan Officer to avoid having the letter misplaced.
3. If you have past-due, collection or judgement accounts that must be cleared, please DO NOT pay these debts off with a personal check due to the delay in the check clearing process. Please utilize a money order for this purpose and forward us a copy.
4. The letter may be neatly hand-written or typed.
5. Introductory Paragraph – Begin the letter with a statement about who you are, where you are buying, and the purpose for writing the letter.
6. Body of Letter – Group the late credit items around the circumstances that caused the lateness on the account. Start a new paragraph if there is a different reason for the lateness on the account. Be sure to address each late payment. Each paragraph should restate the dates listed on the Credit Report, the creditor’s name, and the circumstances that caused the lateness on the account. Attach any information that you may have to support your explanation. For example: “I had an accident at work and was not able to work for 2 months”- include copies of medical bills, workers compensation claim forms, proof that you were not paid through this time period, etc. Explain that the problem is now over and how it will not happen again. For example: “I have saved up a three month cash reserve so that this won’t happen again”. In general, problems that created credit issues that were either beyond your control, unexpected, or one-time problems, do not typically keep you from obtaining loan approval. The burden of proof rest with your letter.
7. Inquiries – An inquiry appears whenever you apply for credit. First Home Mortgage will need to know if have applied for or obtained any additional debts since the time of your application. Write the reason for the inquiry and that no new loan has been obtained. For example: “The reason for the Sears inquiry was because Sears was giving away a free gift at the Mall if you filled out an application. I did not create any new debt with this card.” If you did open a new account, provide the new account number so we can check the reference.
8. Conclusion – Summarize why you are a good credit risk and why you feel this loan should be approved. This is your opportunity to explain how you have improved your credit circumstances.
9. YOU MUST SIGN THE LETTER.
10. Keep a copy of your letter.