Writing a Letter Explaining Bad Credit That Works

Navigating the tricky waters of financial mishaps can be daunting. Through my extensive experience crafting numerous letters to explain bad credit, I’ve learned that a well-written letter can significantly soften the impact of your credit score when communicating with lenders. Here’s a guide, based on my personal experiences and successful strategies, to help you craft an effective letter explaining bad credit.

Key Takeaways

  • Purpose: Understand why and how a well-crafted letter can improve lenders’ perception of your financial situation.
  • Structure: Learn the standard format of a bad credit explanation letter.
  • Personal Tips: Benefit from firsthand tips on enhancing the persuasiveness of your letter.
  • Templates: Use any of the three unique templates tailored for different scenarios.
  • Real-Life Impact: Gain insights from real-life examples where these letters positively influenced lenders’ decisions.

Why Write a Letter Explaining Bad Credit?





Your credit score is a crucial factor for lenders, but a number, no matter how low, doesn’t tell the whole story. Whether it’s due to unexpected medical bills, unemployment, or other life events, explaining your situation can make a difference. A well-crafted explanation provides context that your credit report lacks, offering a narrative that could persuade lenders to consider your application more favorably.

Essential Elements of an Effective Letter

1. Honesty and Clarity: Always be truthful about your circumstances. Clarity in explaining the specifics of your situation is key to building trust.

2. Conciseness: While detail is important, your letter should be concise. Aim to convey your message in a few paragraphs.

3. Documentation: Whenever possible, include documentation that supports your explanation. This can be payment records, medical bills, or employment letters.



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4. Personal Responsibility: Acknowledge your role in the situation, if applicable, and demonstrate what steps you have taken or are taking to remedy the issue.

5. Future Prospects: Share any positive developments that may impact your financial health in the future.

My Personal Tips for Persuasion

  • Empathy: Write with a tone that resonates empathy, both for your own situation and for the lender’s need to make a safe credit decision.
  • Specifics Over Generalities: Detail specific incidents or timelines that led to financial discrepancies. This removes ambiguities and provides a clearer picture.
  • Progress: Highlight any improvements or progress, even if small. This shows commitment to resolving financial issues.

Real-Life Example

In one instance, I helped a client write an explanation letter for a series of late payments during a difficult divorce. We detailed the temporary hardships and outlined the steps taken to stabilize her financial situation. The lender reconsidered her loan application, previously declined, appreciating the transparency and the clear recovery plan.

Three Templates to Guide You

Template 1: 

Medical Hardships Subject: Explanation of Credit Inquiries Due to Medical Expenses

Dear [Lender’s Name],

I am writing to explain the numerous inquiries on my credit report, which resulted from substantial medical bills after an unexpected surgical procedure in [Month/Year]. Despite having health insurance, the extent of the care required led to significant out-of-pocket expenses.

I have attached copies of the medical bills and my payment plan agreements with the healthcare providers. I am committed to resolving these debts as swiftly as possible and have already cleared [percentage] of the total.

Thank you for considering my circumstances. I am eager to discuss this further should you have any questions.

Sincerely, [Your Name]

Template 2: Job Loss 

Subject: Explanation of Delinquent Credit Payments Following Job Loss

Dear [Lender’s Name],

I want to provide context regarding the delinquent payments noted on my credit report. In [Month/Year], I was unexpectedly laid off from my position at [Company Name], where I had been employed for [number] years. This job loss severely impacted my financial stability temporarily.

Attached are my severance package details and job application efforts. I have secured a new position and am diligently working to regularize my past dues.

I appreciate your understanding and consideration of my current financial rehabilitation efforts.

Sincerely, [Your Name]

Template 3: Financial Mismanagement 

Subject: Candid Explanation for Poor Credit Score Due to Past Financial Mismanagement

Dear [Lender’s Name],

This letter serves to explain the poor credit score you observed in my recent application. Historically, I made several financial misjudgments which I deeply regret. However, I have taken substantial steps towards financial literacy and responsibility.

Attached are certificates from financial management workshops I attended and a detailed plan showing my budgeting and repayment strategies. My financial behavior has significantly improved, as evidenced by my recent credit activities.

I am committed to maintaining my financial health and would be grateful for the opportunity to discuss this in person.

Sincerely, [Your Name]

Tips from Personal Experience

  1. Be Honest and Specific: Lenders appreciate honesty. Clearly explain the reasons for your bad credit without over-explaining.
  2. Stay Positive: Emphasize the steps you are taking to improve your financial situation and your commitment to financial responsibility.
  3. Provide Documentation: Attach any relevant documents that can support your explanation, such as medical bills or employment termination letters.
  4. Keep it Concise: While it’s important to provide details, ensure your letter is concise and to the point.
  5. Proofread: Ensure your letter is free of errors and professionally presented.

Common Questions Answered

QuestionAnswer
How long should the letter be?Ideally, one page, concise yet detailed enough to explain your situation.
What should I include in the letter?Introduction, explanation of bad credit, steps taken to improve, and a conclusion.
Can I send supporting documents?Yes, it’s recommended to attach relevant documents to support your explanation.
How honest should I be?Be completely honest but concise, focusing on key facts and improvements.

Writing a letter explaining bad credit is not just about detailing past mistakes but also demonstrating your commitment to rectifying them. By following this guide and using the provided templates, you can craft a persuasive letter that showcases your responsibility and determination to improve your financial health. Remember, everyone makes mistakes, but how you handle them can make all the difference.