How to Write a Letter of Credit Inquiry

If there is anything on an applicant’s credit report that looks suspicious or has not yet been previously disclosed, you will definitely want to issue the applicant a letter of credit inquiry.

The last thing you need is for a loan to go bad because you did not conduct full due diligence. But, remember that the letter of credit inquiry is simply a tool that you can use to gather more information about the applicant’s creditworthiness. The goal is to get as full a picture of the applicant’s financial situation so that you can make a responsible loan decision. Below are five things you will want to do when writing a letter of credit inquiry.

1. Ask the applicant to explain any defaults, foreclosures, or any other red flags. You are not rejecting them or threatening them: you are simply asking them for more information so that you can make a more informed decision. Keep the letter brief, and identify the red flags that you’ve uncovered.

2. Be direct and to the point. Tone is very difficult to convey in letters, and you do not want to try and make the applicant feel guilty or defensive. Nor do you want them to perceive the letter as a threat. Simply maintain a neutral tone that asks for more information. This is a business decision and emotions need to be kept out of it as much as possible.

3. Ask the applicant if there is any additional information about their current financial decision that will aid you in the decision making process. In the time it takes for the applicant to submit her information, events might happen that might not yet show up on a credit report, such as loss of job, loan defaults, etc. Give the applicant an opportunity to explain how these events affect her financial situation.

4. Be careful that you ask the applicant questions in a way that could not be construed as bias. Just as you would not ask anyone about their sex, race, religion, etc. when you interview them, you do not want to ask them about their spouse’s income or questions about family planning. Avoid subjects like race or ethnicity. This is another reason why your word choice should be neutral and professional.

5. Keep an open mind. When you see red flags on a credit report, you must make further inquiries. This is simply responsible lending. However, do not rush to judgment without getting all of the facts. Perhaps the applicant is a victim of identity theft and does not even realize that her report has any red flags. Remember that a credit of inquiry is just that–an inquiry. Many people do not pay close attention to their credit reports and may not even realize what their credit score is. Don’t pre-judge them until you have the complete story.