As part of the loan process, your borrower may be required to provide an explanation for derogatory credit such as late payments, bankruptcy, or judgments. This is a very important step and may make the difference in the loan program and interest rate that your borrower is approved for. While some borrowers are sophisticated enough to handle the task independently, others may require some help. Rather than writing an explanation yourself, give the borrower some guidance on the proper format. A good credit explanation should contain the following:

1. An acknowledgement of what happened. This demonstrates honesty and understanding of the necessity to repay the debt.

2. A reason why it happened. Don