Letter of Explanation for Derogatory Credit for Mortgage

What are the derogatory items on the credit report?

We often get derogatory marks on our credit report or some payments made or received by us are regarded as derogatory items because they are negative items. No one wants to have them on their credit report because they appear when someone doesn’t make payment on time or doesn’t pay at all when someone goes through foreclosures and much more. It is evident that these items are negative that should never be on someone’s credit report. The lender feels very insecure when he sees such items on the report and often shows no willingness to lend the money.

Why do people write explanation letters for derogatory items for mortgages?

It has been told earlier, derogatory items on the credit report are something really embarrassing for the account holder. Therefore, when there is such an item, the explanation letter should be written. Sometimes, there is a genuine reason for these items appearing on the report that can be overlooked easily. However, the lender needs to know about it.

Writing tips:

  1. If you have been asked to write an explanation letter to explain why your credit report contains negative marks, you should start writing the letter as soon as possible.
  2. You should make sure that the details you provide in the letter are based on facts. If it ever turns out that you provided wrong information to the lender after the mortgage company lends the money to you, it will cancel the mortgage and all the money you have paid will go wasted.
  3. There might be more than one derogatory item. Many people forget to mention all of them and therefore, leave so much to the reader. The lender feels that you haven’t mentioned something because you wanted to hide that. This creates problems in the long run.
  4. Know how to structure everything in the letter. You should know the right format of the letter before you start writing. Sometimes, the lender judges you by how to talk to him. So, if you don’t take care of the format, you ruin everything.

How to write?

Below are some guidelines to follow for effectively writing a letter:

1. Start with the basic information:

You should traditionally start the letter by mentioning the details that every single explanation letter does. Just to remind, we have mentioned the details you should start your letter with:

  1. Name of the company
  2. Name of the lender and contact details
  3. Name of the applicant and his contact details
  4. Date of writing the letter

2. Make a list of derogatory items:

The lender must have pointed out the derogatory items while asking for an explanation. You should give an explanation of each and every item that the lender wants. So, it is better to make a list and then explain each item in detail.

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3. Enlist the explanation also:

Just as you have explained derogatory items, also enlist their explanation. To show connection, you can use a numbering method.

4. Attach supporting documents:

The lender doesn’t know you personally and therefore can’t trust whatever you explain in the letter. So, it is mandatory that when you explain anything, do provide the supporting documents to prove that you are being truthful.

Sample letter:

Date:

To lender:

Address
Phone number
Email address and other contact details of the lender

From applicant:

Address
Phone number
Email address and other contact details of the applicant

I am writing this letter about the loan application number.

Names of bureaus issuing credit report

[Enlist the names of bureaus]

All the derogatory items that have been listed in the credit report:

[Enlist the names of derogatory items]

The purpose of writing this letter is to give an explanation of each derogatory item in the credit report. I am explaining each item listed above one by one.

[Give explanation here one by one in the same sequence in which the derogatory items were listed]

For additional information, see the enclosed documents with the letter. You can also contact me if required

Name and signatures of applicant and co-applicant


Size: 12 KB Word .doc File 2003 & later

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