When you miss a payment on one of your debts like a personal loan or mortgage, your credit score can drop by as much as 180 points. But you can lessen the blow of a missed payment by writing a goodwill adjustment letter. There are no guarantees that your lender will be willing to change the way it reports your credit activity, but writing a late payment removal letter is well worth your time.
A goodwill adjustment is when a lender agrees to retroactively make changes to the way it reports a borrower’s account activity to the major credit reporting bureaus (Equifax, Experian and TransUnion). The changes can be related to the timeliness of payments or other details, and are intended to benefit the borrower in some way, said Bruce McClary, who now serves as senior vice president of marketing and communications for the National Foundation for Credit Counseling (NFCC).
For example, let’s say a borrower missed a personal loan payment and believes that one blemish is hindering them from moving forward on other credit applications. This is when a goodwill adjustment to remove a late payment can come in handy.
“(The borrower) can appeal to the lender to make an adjustment to the way that the account history is reported,” McClary said. “So even though they did miss that payment, that activity would be removed to help that person accomplish what they want to do, whether it’s applying for another loan, opening a line of credit or what have you.”
When should you write a goodwill adjustment letter?
The best time to write and submit a goodwill letter to a creditor is before you take any action that requires you to have a certain credit score or a credit report free of negative information, McClary said. This may include opening a new line of credit or requesting a credit limit increase, for example.
“I would suggest that you reach out to the creditor before you move in that direction to ask them if they would make that adjustment in good faith, with the understanding that the information that shows is accurate — that you’re not disputing the accuracy of the information — but you have some things that you want to accomplish and that record as it stands is what may prevent you from accomplishing that goal,” he said.
Your lender is not obligated to honor your goodwill adjustment request or help remove negative marks from your credit report. “It’s likely they could say yes; it’s likely they could say no, and I think there’s an equal chance of either response,” McClary said. “Don’t set your level of expectations so high that everything in the world depends on them saying yes.”
Have a plan in place in the event your lender decides against making a goodwill adjustment to remove a late payment, he added.
It’s also important to be realistic about your track record as a borrower. If you’ve only missed one payment but have otherwise had a history of on-time payments, your lender might be more likely to consider approving your request than if you’ve shown an ongoing pattern of missing your due dates.
How to write a goodwill letter
Asking your lender to simply remove a late payment from your credit report likely won’t suffice — you’ll need to put some effort into your request. Here are some key components of an effective goodwill letter, according to NFCC’s McClary:
- Honesty. Be forthcoming about the circ*mstances surrounding your late payment and the request you’re making. Acknowledge the accuracy of the information and make clear that you’re not disputing it.
- Modesty. Don’t ask for too much. If you’re looking to remove a late payment and other negative items, such as exceeding a credit card limit, you might want to reconsider making this type of request.
- Your efforts to make payments. Explain that you’ve taken every possible step to make your payments on time.
- Basic information. Include personal information like your account number, contact information and mailing address. Print, sign and mail your letter; don’t email it.
You should also briefly explain any financial hardship that prevented you from making your payment on time. While including this information in your letter doesn’t guarantee your request will be granted, it can help your case.
Only write goodwill adjustment letters when you are at fault for missing a payment. You should dispute any legitimate errors on your credit report by contacting the three credit bureaus directly.
Below is a sample goodwill letter that you can download and customize with your personal information when you write your letter to your lender.
View Goodwill Adjustment Letter Template
How to avoid missing payments
The best thing you can do for your credit is to be proactive before your lender reports a late payment to the credit bureaus. Reach out to your lender to ask about options if you’re starting to feel like you might miss a payment, McClary suggested, especially if you have a mortgage.
“There’s so much more on the line when you miss a payment, and you don’t want to put yourself that much closer to possible foreclosure if you are having trouble,” he said.
Here are some additional resources if you’re struggling to keep up with payments:
- Regardless of the kind of debt you have, you can ask your lender about debt forgiveness to wipe out a portion of your outstanding balance.
- If you have a mortgage, consider applying for a loan modification to make your payments more affordable or mortgage forbearance to temporarily reduce or suspend your payments.
- If you’re having a hard time paying off your credit card, you can request a lower APR to make any future debt you incur much smaller.
- If you have different forms of debt, prioritize your bills and build a budget to pay off your debts one step at a time.
No matter what type of debt you have, you can look into credit counseling to help you manage your debt and make payments on time.
