Around a third of active military service members in 2019 said they didn’t pay all their bills on time, and close to that number of military spouses said the same. Military service can require some serious financial planning. But many service members might not realize how joining the military impacts their credit—and how their credit can impact their military career.
Here’s what you should know about the relationship between a military career and credit, and some information about resources that can help military members protect their credit.
How your credit can impact your ability to join the military
No matter which branch of the military you want to join, you have to meet certain eligibility requirements. Specific requirements vary by service branch as well as the level of security needed for the job.
The military does conduct background checks to determine factors such as whether you have a criminal background. A credit check is often included by some branches because the state of your financial situation can help provide a picture about your overall reliability. And if you’re dealing with a great deal of debt or have negative items on your credit report, it could make you vulnerable. Someone in financial distress could be at greater risk of illegal or questionable activity to generate money.
You can be denied military enlistment if you’re in financial trouble, such as if you have a number of collections in your credit history. But it’s actually more likely that poor credit will impact your ability to move up within a military career. That’s because Guideline F of the National Security Adjudicative Guidelines outlines financial considerations that may disqualify you from various levels of security clearance.
Failing to meet those requirements could result in revocation of security clearance. And that could mean losing your job with the military. Any time enlistment depends on a security clearance, the same could be true for simply joining up.
How joining the military affects your credit
Joining the military doesn’t have a direct impact on your credit. You won’t get points on your score because you’re a service member, for example. However, you might want to pay attention to your credit because you could be subject to greater financial monitoring depending on your position and security clearance.
Being in the military can also create some challenges that relate to credit. The National Foundation for Credit Counseling notes some common financial trends and challenges experienced by military members and their families, including:
- Struggling to pay bills on time. According to NFCC, service member households are more likely to pay bills late than other US households. In some cases, this might simply be due to challenges associated with managing daily activities, such as bills, when you’re deployed or moving from place to place regularly.
- Putting major decisions on hold. More than 70% of service members or their spouses say they put major decisions, including buying a new home, on hold during military service.
- Sticking to a budget. More than 50% of active military members and/or their spouses say they don’t manage a regular budget.
Protecting your credit while you serve
That doesn’t mean it’s impossible to maintain a strong credit score while you serve in the military. In fact, a number of resources are available to help you do just that. Here are just a few tips for protecting your credit while you’re in the military, particularly when you’re deployed.
1. Place an active duty alert on your credit reports
An active duty alert is like a fraud alert. It’s a notice on your credit reports that encourages lenders to take extra precautions when approving credit in your name. In some cases, creditors may be required to contact you directly or otherwise verify your identity when approving credit. This makes it harder for someone to pretend to be you and apply for a loan or credit card.
Active duty alerts also remove you from insurance and credit card offers for up to two years. That means that providers can’t do a soft pull on your credit report and send you a preapproved offer in the mail. This reduces the potential for someone to take that preapproved offer and open credit in your name without you knowing about it.
Active duty alerts are free. You can request one from any of the three major credit bureaus and ask that it let the other two know to do the same. Active duty alerts last for one year, so you’ll need to request them annually if desired.
2. Understand your rights under the Servicemembers Civil Relief Act
The SCRA offers some protection for military members when it comes to civil legal action, including those related to financial matters. Some of the protections under this act include:
- Rate cap. In some cases, if military members have high-interest debt from before they joined, they may be able to get the interest rates reduced to no more than 6%.
- Default judgment protection. In civil cases, a default judgment occurs when one person doesn’t show up to a scheduled hearing. If default judgments are allowed, the judge decides in favor of the party that showed up. Due to the nature of their occupation, military members may be protected from default judgments if they aren’t able to make a hearing due to their military service.
- Repossession and foreclosure. In certain cases, creditors must get court orders to repossess or foreclose on property of an active service member. This typically requires that the military service person took out the loan on the property before enlisting or otherwise going into active duty status.
3. Understand your rights under the Military Lending Act
The Military Lending Act provides a number of protections for active military members who are seeking credit during their service. Some provisions of the act include:
- Capping interest, including finance charges and fees, on loans to 36% regardless of credit score and other factors.
- Limiting what creditors can ask you to agree to, such as mandatory arbitration clauses and mandatory payments from your paycheck.
- Protection against prepay penalties if you pay the loan back early.
For any questions about your individual circumstance regarding FCRA or the MLA contact your military branch’s legal office for guidance.
Credit-related perks for military members
As a current or former military service member, you may also have access to perks that help you build and manage your credit and personal finances. Here are just a few.
- Special credit card or loan offers. Military members have access to several credit card offers that others do not, including USAA cards with low interest rates. And you might qualify for a home loan backed by the VA, which can help you gain access to potentially better terms or lower down payment requirements.
- Free credit monitoring. Starting October 31, 2019, military members can access free credit monitoring via the credit bureaus.
- Access to Personal Financial Managers or Personal Financial Counselors. These are individuals trained to help military members and their families manage money and credit in a positive and proactive way.
- The Department of Defense Savings Deposit Program. If you’re deployed to an active combat zone and receiving Hostile Fire Pay, you can build your savings with this program. You can deposit up to $10,000 and earn 10% interest on it.
Note: The CARES Act specifically provides some protections to military personnel and veterans during the COVID-19 pandemic. This includes protections for VA-guaranteed loans for those experiencing financial hardships.
Check your credit after deployment
Understanding your rights and what resources you have available—as well as taking proactive approaches—can help protect your credit while you’re in the military. But no plan is foolproof, and mistakes can happen. So, it’s important to check your credit reports whenever you return from deployment and regularly even when you’re not deployed.
If you find anything on your credit that isn’t correct, you have a right to challenge it. DIY credit disputing is possible, but it takes more time than active duty military members might have. Consider working with a credit repair firm with tools to focus on verification and challenges for military personnel. Working to challenge inaccurate negative items can help you protect your credit so you can protect your security clearance and your financial future as well.