Writing a Letter of Explanation for Derogatory Credit That Works

Navigating the waters of credit repair can be daunting, especially when you’re dealing with derogatory marks on your credit report. I have written numerous letters of explanation for derogatory credit, and I’m here to guide you through the process with tips, personal insights, and effective templates.

Key Takeaways:

  • Purpose of the Letter: Explain derogatory marks on your credit report to lenders or creditors.
  • Structure: Clear and concise, providing context and a plan for future improvements.
  • Tone: Honest and proactive, showing responsibility and commitment to financial health.
  • Common Mistakes: Avoiding blame, excessive details, or emotional language.
  • Templates Included: Three effective templates tailored for different situations.

Understanding the Purpose





A letter of explanation for derogatory credit serves to clarify the reasons behind negative entries on your credit report. It’s your opportunity to provide context and show that the issues were temporary or have been resolved. When I first started writing these letters, I realized that lenders appreciate transparency and a proactive approach.

Structure of an Effective Letter

The structure of your letter should be straightforward:

  1. Introduction: State the purpose of the letter.
  2. Explanation: Provide context for the derogatory marks.
  3. Resolution: Explain what steps you’ve taken to rectify the situation.
  4. Conclusion: Reaffirm your commitment to maintaining good credit.

Here’s a table summarizing the structure:

SectionContent
IntroductionState the purpose of the letter
ExplanationProvide context for the derogatory marks
ResolutionDescribe steps taken to rectify the situation
ConclusionReaffirm commitment to maintaining good credit

Tips from Personal Experience

Over the years, I’ve found a few strategies that make these letters more effective:

  1. Be Honest: Transparency builds trust. Explain the situation honestly without sugarcoating.
  2. Keep it Concise: Avoid unnecessary details. Lenders appreciate brevity and clarity.
  3. Show Responsibility: Acknowledge your role in the situation and detail how you’re preventing future issues.
  4. Include Documentation: If possible, attach supporting documents like receipts, letters from creditors, or proof of payment.

Real-Life Example



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In one instance, I had to write a letter for a client who had multiple late payments due to a sudden job loss. By explaining the situation and showing that they had since found stable employment and set up automatic payments, the lender was willing to reconsider their loan application.

Template 1: Late Payment Explanation

[Your Name]
[Your Address]
[City, State, ZIP Code]
[Email Address]
[Date]

[Creditor’s Name]
[Creditor’s Address]
[City, State, ZIP Code]

Dear [Creditor’s Name],

I am writing to explain the late payments on my [account type] account [account number]. In [month/year], I experienced [briefly explain the situation, e.g., a medical emergency, job loss, etc.]. This unforeseen circumstance impacted my ability to make timely payments.

Since then, I have [explain steps taken to resolve the issue, e.g., found stable employment, set up automatic payments, etc.]. I am committed to maintaining a positive payment history moving forward.

Thank you for your understanding and consideration.

Sincerely,
[Your Name]

Template 2: Account in Collections

[Your Name]
[Your Address]
[City, State, ZIP Code]
[Email Address]
[Date]

[Creditor’s Name]
[Creditor’s Address]
[City, State, ZIP Code]

Dear [Creditor’s Name],

I am writing to explain the circumstances that led to my [account type] account [account number] being sent to collections. In [month/year], I experienced [briefly explain the situation, e.g., a significant medical emergency, unexpected job loss, etc.], which severely impacted my financial stability.

I have since taken steps to resolve this matter by [explain steps taken, e.g., negotiating a payment plan, paying off the debt, etc.]. Enclosed are copies of my recent payments and correspondence with the collection agency.

I appreciate your understanding and am committed to ensuring that this does not happen again.

Sincerely,
[Your Name]

Template 3: Bankruptcy Explanation

[Your Name]
[Your Address]
[City, State, ZIP Code]
[Email Address]
[Date]

[Creditor’s Name]
[Creditor’s Address]
[City, State, ZIP Code]

Dear [Creditor’s Name],

I am writing to address the bankruptcy that appears on my credit report. In [month/year], I was forced to file for bankruptcy due to [briefly explain the situation, e.g., overwhelming medical bills, business failure, etc.]. This was a difficult decision made after exploring all other options.

Since the bankruptcy, I have taken significant steps to rebuild my credit and ensure my financial health. These steps include [explain steps taken, e.g., creating a budget, obtaining new employment, etc.]. Enclosed are documents that demonstrate my current financial stability.

Thank you for your understanding and consideration.

Sincerely,
[Your Name]

Common Mistakes to Avoid

  1. Blaming Others: Focus on your actions and how you’re improving, rather than placing blame.
  2. Too much Detail: Keep it brief and relevant.
  3. Negative Tone: Maintain a positive and proactive tone throughout the letter.

Final Thoughts

Writing a letter of explanation for derogatory credit can be a crucial step in your financial journey. By being honest, concise, and proactive, you can present a compelling case to your creditors or lenders. Remember to tailor the templates to your specific situation and include any supporting documents that can bolster your explanation.