You've been pretty good about keeping your credit rating up. Always paid on time, every time. There may have been a late payment or two a few years back but you never took anyone for their money. But today you got a phone call from your loan officer wanting "credit explanations" regarding some items that happened about two years ago. Why?

First, let's define what "late" means from a mortgage lender's perspective. When you open your credit card statement you'll see a statement date and a due date. Lenders only really care about anything that is more than thirty days past the due date. If the due date is the 15th of the month and the credit company posted our payment on the 20th of that same month, it's not considered late for credit reporting purposes. However, if your payment is posted more than thirty days past the due date, then you've got a "late" payment which may count against you when applying for a mortgage.

CAUTION! While payments less than 30 days overdue may not show up on credit reports, credit reports should not be the only concern raised by late payments. Late payments can trigger penalties, revised loan terms, and contract defaults with creditors. If you borrow, make a point of paying on time and in full.

More and more lenders rely on credit scoring and automated underwriting systems when making a credit decision. However, even these automated systems may still "ask" for a satisfactory explanation of previous credit transgressions.

So what do you say when the lender calls wanting an explanation?

The truth. Over the years I've received phone calls from frantic borrowers wanting to know what they should say when asked for a credit explanation. "David, it's been almost two years since I made a late payment on my department store credit card...I have no clue why it was late, much less remember the circumstances!"

"Then explain it that way" I tell them.

Lenders aren't looking for some outlandish reason your payment was late. No "my dog ate it" tale is required. Usually, a simple answer such as "I thought I had made the payment on time" or "I really can't recall, I've never been late before or since" or even "I forgot" can work.

Just tell the truth and move on. Many times the lender just wants to fulfill an underwriting guideline which requires them to provide a credit explanation along with any derogatory credit entry. That's really about it.

Remember that lenders do not expect perfect credit. People do make mistakes and payments are missed. It happens even to people with great credit -- it just doesn't happen often.

Major credit problems such as bankruptcies or foreclosures will require more homework and detail. Sometimes lenders want to ascertain that the bankruptcy or foreclosure was something beyond the borrower's control, something caused by a disability, loss of job and so on. And a lot of times they'll want some third-party verification to verify what caused the financial problems, proof such as medical bills in the event of an extended illness or injury, or evidence that in fact you were indeed laid off and couldn't find work.

But just remember that if ever a lender needs an explanation regarding a credit issue, just answer truthfully.

For more articles by David Reed, please press here.

Published: June 28, 2001

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.