VA Loan & Letter of Explanation- Charge Off

[Anonymous]

Hi All! I've been a long time lurker and definitely need some of your advice on a letter of explanation on a charge off for my VA loan.

I started working on my credit last year and have cleaned up most of my baddies. My last unpaid item on my report is for a First Premier charged off account from 2018. Up until April of this year, I assumed that the account on my credit report was an error (same CL) as I have a FPB card that was paid off in 2018 and closed. After failed calls with FPB which sent me to other credit agencies which wouldn't give me the statements to show two sep accounts, I finally opened a case with BBB. After a month of back and forth, I received a packet of statements showing two separate accounts 3 weeks ago. 

Now I'm in the final stages of my VA Loan and I'm stressed. I set aside money for this debt and would like to pay it. It's not reporting accurately on 2/3 agencies and I'm afraid that a payment would drop my score and I can't afford that. I got a preapproval with a middle 602 (went through manual underwriting) and working on my util raised it about 20 points in last month. Currently at a 625 mortgage score.  

How do I write a letter of explanation for this? Do I pay it? Please help! I'm so afraid that I can lose my loan because of this one item.

 @VALoanMaster 

[CreditInspired]

IMO, you should ask your lender what you should do. They're the one making the loan so they will lead you in the right direction. And the sooner you talk to the lender, the better. They hate being blindsided. 

GL2U

[VALoanMaster]

Hi @Anonymous,

Generally we ask for credit LOEs when doing a manual underwrite to "put in the file" but they typically do not impact the underwriter's decision.

In fact, I'm surprised the lender is asking for one since the account is 3 years old.

You've already written your LOE.

Up until April of this year, I assumed that the account on my credit report was an error (same CL) as I have a FPB card that was paid off in 2018 and closed. After failed calls with FPB which sent me to other credit agencies which wouldn't give me the statements to show two sep accounts, I finally opened a case with BBB. After a month of back and forth, I received a packet of statements showing two separate accounts 3 weeks ago. 

I have a couple of opinions on the charge off.

1) Depending on how it's reporting, paying it off could raise your scores.

2) VA does not require charge offs to be paid as a condition of approval but the u/w may.

As a LO, I would run a credit sim to see if  paying off the account would improve your scores. If not and the u/w required it to be paid off, I would go to bat for you with my u/w and try to talk them out of it.

One final thought.

Do you know if your LO has tried to get you approved through an AUS (automated underwriting system) with your improved credit scores?

[Anonymous]

@VALoanMaster 

Thank you for your reply! 

"Do you know if your LO has tried to get you approved through an AUS (automated underwriting system) with your improved credit scores?" I will call and ask! Since writing this post it is up another 13pts .