Credit Scores and the Military
Those who serve in the military are more than familiar with sacrifice. They spend long periods of time away from their homes and families, often risking their lives to protect and defend the freedom of all Americans. And when military service ends, transitioning back to a “normal” civilian life can be an extremely difficult process. Luckily, there are a number of programs available to assist military personnel with everything from housing loans to disability benefits.
Part of the transition back to normal life includes establishing (or reestablishing) good credit and a making a plan for maintaining overall financial health. Unfortunately, the credit scoring system won’t automatically take into account that your lack of credit history (or poor credit history) may be down to the fact that you were serving overseas.
Military personnel may feel unfairly penalized by this system, which is certainly a flawed one. But a proactive approach to establishing good credit should remain a top priority, especially for those who need to purchase homes, automobiles, pay down student loan debt, etc. Serving your country should never have to mean sacrificing a good credit score.
But first things first….we will take a look at why good credit is important for those who want to serve in the first place!
Credit Scores and Military Clearance
A bad credit score can hinder your ability to obtain a loan, insurance, and even employment. But most people are unaware that bad credit can also be a factor in determining your eligibility to join the armed forces. Good credit is clearly an important issue for all Americans, but especially so for those who wish to serve our country in the armed forces.
Some branches of the military will run a credit check on anyone who wants to enlist, as part of a standard background check, while some will only run credit checks on those individuals who require a security clearance in their positions or ranks. The logic behind credit checks and the military is this: poor credit history can be taken as an indicator that the military applicant lacks some of the traits needed to serve, such as responsibility and trustworthiness.
Additionally, it may be assumed by the military that a bad credit score may eventually lead to poor job performance if the individual needs to work a second job in order to pay down his or her debts.
Let’s say you do manage to enlist in the armed forces even with a poor credit history: if you find yourself up for a military promotion that requires a higher security clearance level, your security clearance could then be up for review. In this scenario, if your credit history is poor, you could ultimately be denied the promotion or possibly have your military security clearance revoked. This is a real and legitimate concern for military personnel, and it needs to be understood by anyone wishing to enlist.
It is wise to review your credit history before stepping into the enlistment process, to see if there are any actions you can take to improve your credit score. It’s possible that your score is poor due to no fault of your own but because of errors in the credit reporting system. This is why you need to review your credit history and ensure there are no blemishes on your report that could be removed by disputing erroneous charges or other issues.
Once You Serve: What Happens to Your Credit?
Deployment itself does not “ding” your credit score, as this would be the greatest flaw of all in the system! However, there are “side effects” of deployment that may cause your score to drop, and you need to be aware of the ways in which you can prevent this from happening if you plan to serve.
During the time in which you are deployed, your credit score could take an unfortunate hit if certain precautions are not taken in advance.
- Pay Bills on Time While You're Deployed:In order to keep your credit in good standing while on deployment, you must ensure all of your bills get paid on time while you are away from home.
- Prevent Identity Theft: You will also need to take action to prevent identity theft, which is a common way that credit scores are negatively affected, not only for military personnel but for anyone who uses credit.
- Contact All Creditors on Deployment Status: Before leaving, contact all of your creditors to notify them of your deployment status. While this in no way relieves you of the obligation of paying your bills, at least you have created a paper trail and made them aware of your deployment status.
- Appoint a Power of Attorney: Additionally, you may opt to appoint a trusted friend or family member as your power of attorney, to ensure that any problems, financial or otherwise, can be addressed effectively during your time away from home serving in the armed forces.
- Set Bills for "Auto Pay": Setting monthly bills for “auto pay” is a good idea, provided you have a plan to ensure there is enough money at all times in your bank accounts to cover these recurring expenses.
- Active Duty Alert on Your Credit Reports: You should also put an active duty alert on your credit reports; this will prevent someone from opening accounts in your name while you are deployed. These active duty alerts remain on your credit report for one year; when the active duty alert is present, creditors are required to take extra steps to confirm that anyone applying for credit in your name is actually you. Should your time of deployment be shorter than a year, you can cancel the alert upon your return home.
- Opt Out of Junk Mail: Junk mail is a breeding ground for identity theft, and you should try to opt out of as much of it as possible. When you receive credit card offers in the mail, thieves can take the information and try to go ahead and apply for the credit accounts in your name, especially if they have access to any of your personal information.
- Mail Monitoring: During deployment, you need to ensure that your mail is being sent to a trustworthy address and not piling up for long periods of time. Mail monitoring may also make you aware of any problems with your accounts, and your power of attorney can address these for you in a timely manner, rather than letting them go unattended during your absence.
The Military Checklist for Protecting Credit
While you are serving and protecting your country, this checklist can help you protect your credit. Follow these essential steps to ensure you don’t come home from service to find your credit score has nosedived, an added stress you certainly do not want to be burdened with after a difficult period away from home and loved ones.
- Place the Active Duty Military Alert on All Credit Accounts. This is a completely free option, and you can do this by contacting one of the three major credit bureaus (Equifax, Experian, or TransUnion). Once you have done this, your credit report is flagged so that creditors need to take extra steps to ensure that an account being opened in your name is actually you! This is simply one of the most important things you can do to protect your credit during deployment, and it should be a priority for anyone who serves.
- Give Your Credit Report a Thorough Review. Before leaving for military service, there are many affairs to get in order, and a review of your credit report should certainly be on that list. This will give you an opportunity to get your report in the best possible shape before you leave, ensuring any errors or negative items are addressed and corrected where possible.
- Set up a Power of Attorney. While you are away, you will have more peace of mind if you know that a trustworthy friend or family member can handle any financial issues for you, especially those that could have an impact on your credit score.
- Utilize the 2018 Credit Freeze. The three major credit bureaus introduced this free option for military personnel in 2018: you can place, lift, or remove a security freeze on your credit files, which prevents your credit information being shared without your explicit permission.
Even With the Best-Laid Plans…Things Can Go Wrong
During your time of deployment, any number of things can happen to affect your credit score. Perhaps the friend or family member left in charge of your financial matters falls ill and is unable to attend to your affairs. Perhaps your spouse loses a job, or your home goes into foreclosure.
The reality for many who serve is that they come back to face the hardships of everyday life, and this can be incredibly overwhelming for those who have experienced the challenges of serving.
Bad credit affects millions of Americans, for reasons of their own making and for reasons they had absolutely no part in creating. But even in the direst of circumstances, there are a number of things you can do to work toward getting back on track.
If you find that your credit score was damaged during your time of deployment, you can take these steps to try to improve it.
- Pay down your debts! This is always the obvious first step when it comes to improving your credit score, but it is worth emphasizing you need to be strategic about the way you pay down debts. You should be mindful of your credit accounts with the largest balances and the highest interest rates and try and get those knocked out quickly. You may also consider consolidating all of your credit card debt into one personal loan.
- Improve your credit utilization ratio. Paying down your debt will work toward this goal, but you can also think about opening a new account with a higher maximum amount of credit available. Don’t go this route if you feel you will be too tempted to spend more; however, as long as you can keep your spending in check, this may help you improve your score. Take your $5,000 debt on a $10,000 card (50%) and move that debt to a $20,000 max card (25%). By doing so, you have cut your utilization ratio in half!
- Give it Time. While this doesn’t seem like useful advice for someone who is anxious to improve their score, the bottom line is you may need more time to build up credit history if you’re young.
- Repair Your Credit. More and more military officials are going out in search of credit repair. There are actions you can take to work on fixing bad credit, but it takes time. Make sure to utilize the proper steps in repairing your credit. Get a full examination of your credit score and answers on how to repair it that are specific to you.
The Servicemembers Civil Relief Act (SCRA)
Last but certainly not least, one of the most important things for military personnel to explore in terms of protecting their financial health is the Servicemembers Civil Relief Act (SCRA).
This act provides a number of different financial protections to servicemembers while on active duty, including protection from evictions to the ability to terminate your cell phone contract without penalty.
The protections afforded by this act can have a direct impact on protecting your credit score as well, and you won’t be penalized for utilizing it.
To learn more about the various ways you can take advantage of the SCRA this article offers some useful tips and information.
If your credit has already been damaged by a previous deployment or other life circumstances, contact Lexington Law, the country’s leading credit repair law firm. Our knowledgeable and trusted staff can work with you to explore the options available for repairing and improving your score, and we can help you ensure that your report is a fair and accurate representation of your credit history.