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(I keep seeing people's need for a decent LoX and thought I'd share! Hopefully, this isn't too much info: this is the LoX we used for our FHA loan!) SAMPLE LETTER OF EXPLANATION
FOR CREDIT CHALLENGED BUYERS Re: Mortgage (FHA and/or VA Loan Application)
Dear Sir or Madam:
This letter provides explanations for each derogatory item on my credit report obtained in connection to my mortgage application.
1. Late payments dated 12/07 and 01/08 in regards to current ACME Credit Union (Auto loan) –
balance $845
In December 2007, immediately prior to the loan's “due date” (December 20th) while speaking with an
account specialist, I accepted their kind offer to “skip-a-payment” (a yearly offer during the holidays) in order
to be more generous with my family during that holiday season. Having been assured that arrangement had
been made, I did not send in that month's payment.
January 21, 2008, I remitted my January payment, unaware that a “mix-up” had occurred in processing my
“skip-a-payment,” causing my January payment to actually be applied to my December 2007 payment. As I
unaware of the situation, I did not make the “extra” payment to apply to my January 2008 payment, which
would have brought my account current.
I was notified of this situation in February (approximately the 20th) when I arrived at my local branch to make
my February payment. I explained the situation and immediately paid the delinquent amount, thus bringing
my account current.
As I had believed the matter to be resolved, and being fairly ignorant of FICO scoring, I did not believe there
was reason to check my credit reports until March 2008. Whereupon, I realized that the misunderstanding had
been reported to the major credit bureaus. I immediately called Tyndall and spoke to the account specialist
who then said that it was “too late” to fix, but apologized for her part in the misunderstanding.
2. Late payment dated 04/08 in regards to current ACME Credit Union (Auto loan) – balance
$845
This incident was purely a lack of attentiveness on my end. As I was on travel for the US Navy near the due
date, I requested that my wife mail our car payment in. She did so, but unfortunately, neglected to follow-up
and make sure that it had indeed, been received by Tyndall in a timely manner.
In monitoring our checking account (where the payment originated from), she realized that the check had not
been cleared in a timely manner and immediately made the payment in person.
As we realize that this oversight was absolutely avoidable we have implemented several measures to assure
that it never happens again. Not only do we make all payments on all accounts either in person or online – as
that way, we know that the payment was received and credited to the appropriate account, we also pay well
before the actual due dates.
In addition, we have implemented an easy-to-access ledger system – both as a hard-copy physical ledger
book and an online tracking system. Both of which are compared against each other and items paid and
“cleared” notated as such on at least a weekly basis.
3. Late payments dated 12/07 (and previous) in regards to current ACME Student Loan –
current balance $23,132
In February 2000, we consolidated my student loans into one loan payment with XXX, with the terms being
8% interest @ $242/month on a “Level Payment Plan.” That payment was more than manageable and we had
absolutely no issues in paying it.
In approximately 2002, our loan was “sold” to another lender and our obligation immediately increased to
$504/month, despite being on the “Level Payment Plan.” When we called to inquire as to the circumstances
to this change, we were told that we “had always paid this much” despite having payment coupon books and
a loan agreement to the contrary. Daunted, and not knowing our rights as per the Higher Education Act, we
struggled to make those payments. My wife sought extra employment and I remained a Reservist in the Army
National Guard simply to struggle to make the payments. As our income at that time was approximately
$45,000/year combined and our housing costs (which were very reasonable for the area outside Washington,
D.C) were $700/month, it was a losing battle.
Later that year, I accepted a position with the Federal Government for the job stability and higher income.
While I was being paid more monthly, we still had such a large amount in arrears that it was almost
impossible to catch up. While my income had increased, our housing costs had nearly doubled as well,
making it difficult to become current in a timely fashion. All the while, the interest compounded and
compounded, of course.
Approximately a year and a half ago, my father, who passed away after a long devastating illness, kindly left
me a modest sum of money (approximately $10,000 after taxes). After the funds were “freed” from the estate,
in April of this year, I used the majority of that money to become current with that account, while the rest
went to purchase a solid, used, easy-to-maintain vehicle (rather than obtain another loan for a new purchase).
Since that period of time, I have made on-time payments on this loan – paying slightly more than what is due
and making the payments well before the due date.
Please note that from the time the issues began in 2002 until 06/2008, I repeatedly called ACME, asking for
direction and explanations of the circumstances. On approximately 12 occasions over that time period, I
asked for a copy of my promissory note and/or payment history (as they would not accept my hard copies of
our transactions). Each time I was told it would be forthcoming. Each time, it was NOT.
In April, after I made the large payment bringing the account current, I stumbled upon a website called
“MyFico Forums,” a forum provided to the general public by the creators of the FICO Scoring System. It was
there, after asking for advice on dealing with the matter of the exploded payment, that I was directed to call
the Department of Education's office and inquire about the legalities of what I was dealing with. I was
advised by a Resolution Specialist at the Department of Education that there was indeed an error on ACS's
part and was advised to immediately request an audit/investigation from the Ombudsman's Office.
At this point in time (06/08), I was more concerned about my immediate credit scoring situation, and mindful
of how long an investigation takes, I instead approached ACME's Resolution Team with the Department of
Education's assessment and recommendation, asking for a resolution and credit reporting adjustment in
accordance with their findings.
In 07/08, I was notified that there had, indeed, been a problem with our account and that they were unable to
discover what had caused it (guesstimating that the “problem” occurred when the lender sold our account).
They were able to provide me with an (incorrect) copy of my promissory note – which I accepted – as I did
request the loan and I have benefited from the education the loan is for. And lowered my payments from
$504/month to $199/month, which I gladly accepted. Further, they agreed that because of the problems with
the account, they would remove nearly a year's worth of lates.
I honestly cannot stress how difficult this entire situation has been and I apologize for the convoluted
explanation – but it is how it occurred. I realize that most would have gone further and ordered a full
investigation or prompted a lawsuit, but in the end, after dealing with this situation for over 6 years, we
simply wanted it settled. Six years was more than enough.
4. Medical Collection – ACME Collection Agency 07/05 – $196 paid
This medical bill was the result of a medical emergency in 06/07. We never received a bill for these services
and assumed (incorrectly) that our medical insurance paid the entire bill. Once we realized, via a phone call
from a West Asset Management collection agent, that it had not been paid, we immediately paid this bill.
5. Medical Collection $56 due – unpaid
We have requested full debt validation from this collection agency and have never received a response from
them. The little information given to us leads us to (firmly) believe it is NOT our bill, as the medical
professional originating the account is not a provider any member of our family has ever seen.
We are still in the process of disputing this account as, again, we do not believe it is accurate.
6. Multiple Credit Card Inquiries
While our past credit is damaged horribly by the situation with the student loan servicer, ACS, at this point,
we are able to move forward – and make our own future and better our credit files with solid payment history
and new lines of responsibly used credit lines. To this end, we acquired a reasonable number of credit cards to
begin rebuilding our credit, as recommended by FICO advisors and experts.
7. Four “New” Credit Card Accounts
As I mentioned before, I am doing my best to rebuild my credit-standing. To this end, I have applied and
been approved for 3 major credit cards and 1 “store” card. In order to not incur more debt than I can
reasonably pay off, I limit my usage of these accounts to what I can afford. However, as they are still
relatively new, the fine “art” of using these cards and paying them before they report high balances to the
Credit Bureaus is still one that I am learning. My balances are still, I believe, reasonable and fairly average.
We make a point of paying far, far, far more than the “minimum payment” on each one – and in fact, make
multiple payments (which has been suggested to us by several FICO Forum experts) during the month.
In conclusion While I admit that we have many issues that have affected our past credit-standing, we have implemented many
measures to assure that our credit scores and worthiness will increase. While we have the luxury of a stable
government job in this economy at an important base in the US Navy hierarchy, we also make a point of taking costsaving measures where we can. We have since cut back on luxury items such as cell phone bills, cable, entertainment expenses, and monitor our accounts and budget to the penny.
And please let me add that we completely understand the impact of a mortgage and the responsibility that goes with such a commitment. We have never, in the 11 years that we have rented our home, been late on a rental payment. While we see daily the effects of the current economy and can certainly understand a lender's aversion to the hint of “risk,” we do believe that my stable job with the Federal Government, our rental history and the dedication we've shown to fixing our past mistakes and repairing our credit make us an excellent risk. We have weathered quite a bit of adversity, both personally and in regards to credit, and we have emerged stronger, wiser and more dedicated to doing what's “right” - not what's “easy.”
Thank you very much for your time and consideration.
Very respectfully,
Mr. Wonderin (Please note that this letter has been modified from the original -- one posted originally by Fiona Murphy -- If you want to know anything about her, Google is your friend!)
~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~* Hubby's FICOs when we started: high 400s (June 2008)
Hubby's FICO NOW (04/06/09): TU: 679 EQ: 608 EX: ???
My FICOs: TU: 643, EQ: 606
Closed on new home: 1/20/2009 -- If we can do it, YOU can do it!!
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