Writing a Letter of Explanation for Credit Problems [Free Sample]

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When consumers experience financial difficulties that cause their credit rating to go down, they may have trouble getting new credit, a new job or insurance at a reasonable rate.

Credit Problems

However, a letter of explanation for credit problems may help convince the creditor, employer or insurance company to favor the consumer’s request.  

Many lenders are willing to help a consumer in financial trouble if he or she can give a clear and reasonable explanation for the missed payments, and offer assurances that the problems have been remedied.

Check Your Credit Score

The first thing the consumer should do is check his or her credit score. According to the Fair Credit Reporting Act, consumers have the right to receive correct and complete information about their credit status from the credit bureaus.

Consumers have the right to know what is reported on their credit report, and if there are mistakes, the credit bureaus must investigate a challenge. Accurate adverse credit information remains on the credit report for seven years, and bankruptcy remains for 10 years.

Since, according to Consumer Report, about half of credit reports have errors, the consumer should verify their credit score before they write a letter explaining credit problems.

A good letter of explanation needs to follow certain guidelines if it is to be effective.

The facts should be accurate – the consumer should not exaggerate their financial troubles or tell an untruth. The facts should be stated along with the consumer’s understanding at the time, any influence from outside people at the time and the genuine reason the consumer did not pay his or her bills.

The consumer should take responsibility – if the reason for the financial difficulties are mistakes made by the consumer, he or she should clearly state that they were at fault. 

If the consumer was a victim of a scam or really did innocently get behind in payments, they should clearly explain the situation and to whom they reported the incident.

The creditor should not be blamed – the consumer is trying to get help from the creditor, so it makes sense not to criticize or blame the creditor for the consumer’s financial difficulties.

The creditor may not feel positively inclined to someone who censures a fellow creditor. When consumers get into debt that they have difficulty repaying, they may become angry and try to blame others. 

Consumers who appear to be rational and in control of their debt have a better chance of getting credit when they need it.

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Give supporting documentation – when problems are explained, supporting documentation such as receipts, insurance policies, contracts, letters and other documents that give a clear picture of the consumer’s claims. Only copies of documents should be sent. Originals should be kept.

State how further problems will be avoided – if mistakes were made, the consumer should clearly show how he or she has learned from those mistakes and will avoid them in the future.

Anything that helps improve the consumer’s financial situation should be mentioned, such as a better, higher-paying job, a spouse who got a job in order to contribute to the finances of the family, an illness in the family that had a negative impact on the finances is in the past. If the consumer attended credit counselling, it should be mentioned.

Type Of Loan

The letter should open with the type of loan being sought and how much. A good reason should be given for wanting the loan. 

For example, a car loan is requested because a car is essential for the consumer’s job, or a home loan in requested so the family can move into a home with more space, a big backyard or any other reason they want to buy a home. 

Many lenders believe that if a consumer is emotionally attached to a home or needs a car for work, they will be sure to make the loan payments.

Below is a sample letter of explanation for credit problems. It should be written in formal, business-letter style with no grammatical or spelling errors. 

It may be sent to several creditors, so each letter should be sent by certified mail, so the consumer has a record of which creditors received the letter and when they received it.

Sample Letter Of Explanation For Credit Problems

Name of Consumer
Address of Consumer
City, State, Zip Code


Name of Lender
Address of Lender
City, State, Zip Code

RE: Explanation for late payments on credit report

Dear Name of Lender:

This letter is in reference to my application for a loan of $10,000 to purchase a new car. 

I understand that my credit rating is low and the purpose of this letter to explain the reason for this, and how I have remedied my financial situation.

On DATE, the company I worked for laid off 200 employees including myself. During the exit interview, I was told it was because the company needed to reduce spending due to the economic downturn.

I was in good standing with the company and was given a letter of recommendation from my supervisor. 

Because of the economic situation, I was unable to get another job until DATE. During the time I was out of work, my family lived on my wife’s salary. We were unable to make payments on our credit cards and mortgage.

Since I got my new job, we have resumed payments on all of our debts and plan to pay them off. 

Now, I require a car for my new job and would like an auto loan. I will be able to make the payments every month.

Thank you for considering my situation. If you have any questions, I can be reached at Phone Number or Email Address.


Signature of Consumer
Printed Name of Consumer
List of Enclosures: Copies of letter of leaving the job, recommendation from supervisor and hiring letter for a new job

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