How a Good Faith Letter Can Hurt Your Credit Score

IVery often consumers confuse a goodwill letter and a good faith letter with dispute letters. A goodwill letter basically asks a creditor to remove, or not report a minor blemish on your credit history to the credit bureaus as you have been with them for some time, and outside of this small blunder on your part, you have been a stellar borrower. A good faith letter is one that you send to a creditor when your financial situation is such that you can’t even make the minimum payments to the lender and are sending what money you can in “good faith.”

The Advantage of a Good Faith Letter
This is an effort to be as upfront and honest with the creditor as possible. You may have come across a rough patch in your life, where making even the minimum payments has become a financial burden. A good faith letter shows the creditor that you have not forgotten about them, and that you intend to pay them the money that you owe them.

The Disadvantage of a Good Faith Letter
In theory, alerting the creditor of your financial troubles should work in your favor. This is not always the case. If you have not worked out an updated payment plan with them, and received this revised plan in writing, then creditors will likely report the account as late with the credit bureaus. Additionally, after six months of less than minimum payments, the creditor is legally allowed to forward the account to a collections agency, which will ruin your credit score.

The Verdict on Good Faith Letters
While a good faith letters should indicate to creditors that you aim to pay them off, many are worried only about their bottom line. The prudent move is to get something in writing from them if you are able to negotiate some sort of settlement plan. Simply sending off a good faith letter with some money and terms that you think that they might agree to is probably going to end up with your account in collections and your credit scores taking a huge negative hit.