If you've missed the occasional payment, or been late a few times, that can lower your credit score. Often, you can call that particular lender and ask them to remove the negative remarks from your credit report. If you are usually on-time, with only the occasional slip-up, they will often remove that ding from your report as a courtesy. But what can you do if you have major problems?
- It is perfectly acceptable to write a letter to explain why your score is so low. If you're applying for a mortgage or other long-term loan, a low score can make a huge difference in the overall cost of the loan. It pays to at least attempt to give the lender a reason why they should offer you a better rate.
- Be HONEST! I can't stress this enough. Making up a sob story is not in your best interest in the long run. Never mind the potential fraud issues that you open up for yourself, the lender may penalize you if they discover your lies. A lot of lenders have ways to raise rates if certain things happen - such as a late payment on an unrelated card. It's best to avoid this whole potential situation by being honest.
- But there are numerous reasons why your credit scores may have tanked. You lost your job, you had major medical issues, you had your identity stolen, or you had a business go under. Any of these scenarios can cause major problems with getting things paid on time.
- If you are going to explain the situation, most lenders will want the explanation in writing. Be thorough! Don't just tell them you lost your job, give them dates - both when you lost it and when you got a new job. Describe in detail how you looked for a job in the meantime. You want the lender to view you as someone who didn't just sit around and whine but actively looked for a new job. Essentially you want to show the lender that you WERE concerned about paying off your debts and dealing with your responsibilities. Lenders aren't immune to the news about the economy. They know when the economy is bad that it can take longer to get a job.
- You also want the lender to know what you're doing to correct the score. Lenders are much more willing to work with people who are proactive in dealing with their bad credit. They want to see that you are currently paying debts you owe. If you have a bankruptcy in the past, but your recent activity shows payments on time and responsible finances, they will probably give more weight to the recent responsible behavior.
- Lenders should look at you more favorably if you're upfront with them. Don't wait for them to ask about the issues, you know they will. If you submit the explanation with the application it shows that you are aware there was a problem and you aren't trying to hide it. They are more inclined to view you as responsible, owning up to your past problems and actively working to do things right this time.
It's all a matter of perspective here. None of this is guaranteed to make a difference, but it can and often will. You want to give them a different perspective than your credit report might give them. Remember to be honest, be thorough, and be upfront!