Function

• The letter explains the situations negatively affecting the applicant's credit report. If there are any missed payments or collections noted on the report, the circumstances as to why they occurred should be detailed in the letter. The letter of explanation also gives the applicant a chance to inform the lender of temporary loss of income or unemployment.
  
  

Features

• Each negative factor should be addressed in the letter. The details of the situation and the reason why a payment could not be made should be included. The letter is a personal account.
  
  

Considerations

• Letters of explanation differ from letters of hardship. Letters of explanation are used to finalize the initial loan approval. Letters of hardship are sent to the lender to explain why current mortgage payments cannot be made and to avoid foreclosure.