Letters of Explanation

With the credit score being a mathematical calculation that uses past events to determine the credit score, there really is not a way to account for unfortunate life events. In other words, the poor credit score could be a result of job loss or illness that reduced earnings. These unfortunate events may have forced a consumer to miss many of their payments simply because they did not have the cash coming into the household to make the necessary payments. When this occurs a detailed letter of explanation is required so the lender knows the story behind the poor credit score.

The letter of explanation needs to make sense to the items reported on the credit report. In other words, losing a job in 2006 and being currently employed in 2007, the job loss would not explain late payments in 2007. The letter of explanation needs to address all late payments on the credit report. If there is not a good reason for the late payments then the consumer should understand the reluctance of a lender to provide more funds when repayment is questionable.