many reasons one may need to borrow money, but if you have a bad credit score, it can be a serious
challenge. Because fixing your credit score can take years.
along to learn about how your credit works and what kind of letter could be the
difference between getting your loan application approved and having it denied.
The definition of a bad credit
Whenever you use
any type of credit account, the activity on that account is reported to at
least one of the three major credit bureaus in the US: Equifax, Experian, and
TransUnion. These businesses track and store about ten years' worth of your
credit account details in their massive databases.
always keep your credit card balances low, pay your credit card and loan bills
on time every month, and make at least the minimum payment, you are helping to
build a positive credit score. If you carry large revolving debt balances, miss
payment due dates, and ignore your accounts, your credit score will drop
scores are an attempt to gauge the likelihood you will repay a loan. They range
from 300-850. The higher your number, the better. Bad credit scores start at
650 and go down from there. People in this category are considered a high risk
and pay the highest interest rates. They are prime targets for bad credit
loans. The definition of a “good” and “bad” credit score does vary from lender
to lender. Some lenders won’t touch anyone with a credit score under 650, some explicit consumers with a sub-650 score.
The exact range
– Very good
620 – Extremely poor
So how to Get a Loan with Bad Credit? Explain
If You Have
Bad Credit, a Letter of Explanation Could Help. For example, a letter of explanation could be the difference between
getting your loan application approved and having it denied.
be surprising to hear, but certain important financial decisions can hinge on
something as simple as a letter. Letters of explanation are an important part
of the lending industry; they allow borrowers to clarify certain items in their
financial history, including a bad credit score. An explanation letter is
submitted as a part of a loan application process in order to explain certain
aspects of your finances that might otherwise raise a red flag. These kinds
of letters are necessary because sometimes there is more to a particular
situation than meets the eye. Sometimes perfectly normal transactions can look
suspicious if, for instance, they were done in cash; other times a recent
change of job or address will trip up underwriters and require clarification.
How to write a letter of explanation?
The key to
a good letter of explanation is to cover all possible derogatory marks, gaps
and extenuating circumstances that may catch the underwriter’s attention. Be
specific, and include dates, details and supporting evidence for each scenario
letters of explanation generally are typewritten, it is noted that lenders may
accept letters in any form, from handwritten with pen and paper to email.
of how you submit your letter, use a standard business format, address it to
your underwriter or mortgage company and include your name, the date, and your contact information.
officer can help you collect supporting documents and compose your letter. It
and supporting evidence for each issue. Include specific dates and dollar
amounts, and avoid placing blame for any negative situation
you took to resolve each issue and the date of resolution
steps you’ve taken to ensure the situation doesn’t happen again
such as medical bills, credit card or car loan statements, divorce papers, and tax documents, that backs up your
explanations and timelines
letter for spelling, grammar and formatting issues before you submit it, and
follow your loan officer’s instructions.
A letter of
explanation helps your lender understand you better. Use it as an opportunity
to show that you are a responsible borrower who can manage big financial
obligations like a mortgage.