How to write a letter to bank for loan explaining bad credit

By Spider Computech on
Poor Credit Scores: Score ChartIf you have bad credits and apply for a loan, many banks may ask you to write a letter to the bank explaining bad credits. With recession and economic downtrends troubling almost everyone around the world, it is not uncommon for individuals or business entities to have bad credit scores: this makes obtaining further loans quite difficult, if not impossible. Nevertheless, you may still get a loan if you can explain the reasons for your bad credit scores. Some banks and lending companies, or may be an individual moneylender, may still lend you money (be prepared for higher interest rates though) despite your poor performance in the past - but they are going to extenuate circumstances and reasons for your existing debt troubles. Writing a letter to explain bad credits may your case.

As you can see, this is going to be a make-or-break mail. If you are not sure how to write a letter to bank manager to get loans despite bad credit ratings, obtaining professional help is going to be always a good idea. Here, we will help you understand what to write in an explanation letter for bad credits, what documents you need to furnish, how to approach and address the authorities for your favour, and finally we will also give you a sample letter to bank explaining bad credits. Keep reading!

Why write a letter to bank for bad credits?

Usually, if you have bad credits, it is very difficult to obtain a further loan or mortgage. Poor credits scores are usually considered results of your financial indiscipline, and they mean you would not probably be able to pay off your debts in future. Nevertheless, bad credits can occur even if you are not a financial mess or blatantly irresponsible. Sometimes, unforeseen catastrophes may disrupt your financial life over which you may not have any control at all. Having low credit scores for such reasons is not your fault, nor do they indicate your irresponsibility and probable inability to pay off your debts in future. If you have valid reasons for your bad credits scores, you should explain them to the lending institution. Who knows, perhaps they might reconsider your loan application!

Some valid reasons for having a bad credit score

Explain what went wrong, and where. You were fired from your job during the recession, and found only a low-paying alternate after much struggle. Probably you or a family member had a medical emergency that cost you huge amounts of money. There can be other hazards too! Your business was burnt to ashes from an electrical fire, and you got back only a mere percentage from the insurance guys. Burglars broke into your house, and took away lots of valuables on which you counted a lot. Please note that these are only examples: you should not make up a false story. However, your situation may be one of the cases listed above, or similar, where you could not really help a big and unforeseen expense resulting in your bad ratings. If you have to write a letter to bank explaining poor credits, you must have a genuine story and tell it in a convincing way. Remember that a successful explanation could be the difference between the approval and denial of your loan application.


How to write a bad credit explanation letter to your bank for loan or mortgage?

Let us now have a look at how to write a bad credit explanation letter to your bank, and what to include in it. This section will deal with how to make your letter convincing yet credible, how to organize it, and how to approach the bank for loan despite blemished credits.

Be convincing, but credible

At the first place, your letter to bank explaining bad credits must be convincing as well as credible. You have to tell your story in an appealing manner, and at the same time, make it credible. Remember, the bank guys are there to do business, and not charity. They are going to lend you huge chunks of money, and it is normal for them to make sure you can pay back. To worsen your case, you already have a poor credit score to put up warning banners in their mind. Whatever you say now will go through disbelief and careful scrutiny. Plus, there are always those fraudsters who make up nice but false stories about bad credits, get caught, and weakens the banker's faith in humankind. Hence, the more convincing your story will appear to be, the stronger proofs you need to submit for the bankers to verify. For instance, if you had a medical emergency, enclose prescriptions, hospital bills, and pharmacy cash memos. Furnish whatever details you can, and attach whatever documents you have, to render credibility to your story.

What are you going to do with the loan?

Why are you applying for a loan in the first space? How would you categorize the planned expense with the borrowed money: as a need, or as a want? For example, if you are residing in a small, rented house, scarcely enough for your big family of six, it may be your need to apply for a house loan. Nevertheless, if you already own a house and apply for a loan to purchase a luxurious villa or country house, that should be labelled as want. An education loan is a need. A car loan is mostly a want. Please understand that you may still get a loan despite your blemished credits if you want to spend it for needs, not wants. When you write your bank loan application letter explaining bad credits, make sure you have a justifiable reason to borrow money.

Recovery measures since the catastrophes

It is okay to have unforeseen incidents jeopardizing one's financial life. It is not okay if you refrain from taking recovery measures. Well, you had a medical emergency, needed a lot of money, spent up everything you had, drowned heavily in debt, and struggled to pay it off. So far, the case is acceptable. The question is, what did you do to recover? Are you working for additional hours? Have you started a home business? Are you doing any part-time jobs for incremental income? Do you see a large ancestral fortune coming your way in near future? Have you improved your financial conditions since the disaster, even if fractionally? How do you plan to pay off if things go bad again? Remember, someone is lending you money, and therefore wants to make sure you do not squander it like before.


Steps to write a letter to bank explaining credit problems

To put what we have discussed so far in a nutshell, a model explanation letter to bank for bad credit must include:
  • A brief statement of your request. Mention the loan amount applied for, confess your bad credit scores, and seek to justify the damage.
  • Specific details with credible, convincing reasons. Mention which payments were missed and delayed, and why. Nevertheless, speak the truth, even if it seems ugly.
  • Provide the supporting documentation. Attach whatever you expect to help.
  • Justify your creditworthiness. Assure them why things will not go wrong once more. According to Lisa McQuerrey of Demand Media:
    "Explain any measures you have put into place to protect your credit, such as overdraft protection, automatic bill-pay programs, automated accounting or significant emergency cash reserves."
  • Be prepared for the worst: a denial, or exorbitant interest rates.

Sample letter to bank explaining bad credit scores

The Manager,

Sub: Letter of explanation for bad credit scores

Sir / Madam,

In response to your request for a justification for bad credits as I applied for a home loan from your institution. The loan in question is meant for purchasing a new 3 BHK home at ABC road, XYZ area, having 750 square feet carpet area. At present, I reside in a shabby, rented 2 BHK flat of 600 square feet with my husband, two children, and my parents-in-law. As the kids are growing up they require more space to play, and a bit of air and exercising space will do good to my aged father-in-law as well.

I fully understand that my credit score is questionable, but I hope to offer a satisfactory explanation. We bought a car on loan six years ago, hoping to pay it off from my husband's salary. Unfortunately, a fortnight after we made the purchase, he made with a severe accident and had to give up his job. He had few chances of surviving; it is nearly a miracle that he could struggled for over an year in the hospital and finally be fit again. Nevertheless, his treatment was quite expensive, and jeopardized the family finances. This led to my poor credit scores.

Fortunately, the setback is over, and we are coming out from the financial turmoil. My husband has got a new job last year, and is doing well. I have started a small bakery business at home alongside my job to recover our finances. We made a mistake by not taking adequate insurance cover; we have rectified that too and have purchased term life insurance plans with accident cover as well as mediclaims for both of us, for any unforeseen catastrophe that may follow.

Having been granted the loan I have applied for, I promise to make sure that repayments are made on time.

Looking forward to your kind cooperation,

Yours sincerely,



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