Why do I need to write a letter of explanation about my credit inquiries?

A credit inquiry list is found on your credit report which is pulled on all loan applications. The report records all the lenders or creditors you’re interesting in establishing credit with as well as if you’ve looked at your credit report. These inquiries are a good indicator of credit risk and/or be actual lines of credit that have not showed up on your credit report.
You may be asked to write and sign a letter to explain the recent inquiries on your credit report up to 120 days. This is required so the underwriter at USDA rural development can determine if you have any additional debts to add to your debt to income ratios that do not show on your credit already. This is a concern because it can take up to 60 days for an account to report to your credit so an inquiry could signal another account with another payment.
When writing a letter of explanation for credit inquiries you must explain to the underwriter what the inquiry were for. You will have to let them know if you established new credit with the inquiry or not. If you did, you will have to provide your most recent statement showing how much credit limit you were granted, the interest rate and what the monthly payment will be. The underwriter will use this information to update your debt to income ratios. If you did not establish credit with any of the inquiries, you will have to state that on your letter of explanation. Do not forget to sign and date your letter of explanation, the underwriter will reject it for it.

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