The men and women in the U.S. military face unique financial challenges, especially when it comes to credit. With this in mind and in honor of Veterans Day, here are five credit facts every service member needs to know:
1. If you’re dealing with credit card debt, you’re not alone
If you’re a member of the military and you’re struggling with credit card debt, it’s important to remember that you’re far from alone. In 2010, the Washington Post reported on a survey conducted by the Financial Industry Regulatory Authority (FINRA). From the article:
“In online polling of 700 current members of the U.S. armed services and 100 spouses of current members, more than one in four respondents reported having more than $10,000 in credit card debt. Ten percent of respondents said they were carrying $20,000 or more in such debt.”
The report also pointed out that worrying about money and debt can be particularly dangerous for members of the military, whose primary focus should be on their combat mission. To get credit card debt paid off as quickly as possible, soldiers should:
- See if they’re eligible for an interest rate reduction on their cards under the Servicemember’s Civil Relief Act (SCRA) – see below for more details.
- Focus on paying off the card with the highest interest rate first if SCRA benefits aren’t available. Then, attack the card with the next highest interest rate. Keep this momentum going until all your cards are paid in full.
- Consider transferring credit card balances to a 0% credit card or refinancing with a personal loan.
- Consider seeking credit counseling if they’re truly overwhelmed by debt.
2. You might be able to lower the interest rate on your credit cards
Members of the military should see if their credit card interest rates can be lowered under the terms of the Servicemember’s Civil Relief Act, according to Curtis Sheldon, president and lead planner at C.L. Sheldon & Co., a fee-only financial planning service provider in Alexandria, Va. “The act requires lenders to lower rates to 6% for military members deployed to a combat zone,” Sheldon said in an email.
If you’re deployed, this could save you a lot of money on interest payments. Most credit cards charge APRs in the double digits, so cutting your rates down to only 6% will make it easier to get your balances paid off quickly. However, this benefit only applies to loans or credit cards opened before going on active duty, so be sure to keep this in mind.
3. You’re entitled to a free credit score
This credit fact seems to be little-known, but it’s a really great perk to take advantage of: Military members and their spouses can get a free credit score at their nearest Personal Financial Management Program office, or by emailing FINRA (send your request to [email protected]). This provides an opportunity to gauge your credit health, and can help you and your family plan appropriately when it’s time to take out a loan.
And, like all consumers, service members should also check their three credit reports for free at least once per year at AnnualCreditReport.com.
4. Identity theft should be on your radar
Identity theft was the No. 1 complaint filed by military members to the Consumer Sentinel Network (a consumer complaint database) in 2012, according to a report by the Federal Trade Commission (FTC). This indicates that identity theft is a special concern for service members, so the Nerds reached out to an expert for advice on how to avoid it.
Said Bob McAdams, a financial advisor at First Command, a financial planning service provider in Colorado Springs, Colo.:
“Every time you provide any personal information, you should always verify: Who you are providing the information to, why you are providing the information, and what the person will do with your information once they have it (i.e., who will they share it with and will it impact your credit score/rating).”
Following these steps will help prevent your personal information from falling into the wrong hands, thereby reducing risks to your credit.
5. Bad credit could jeopardize your security clearance
If you’re a high-ranking official in the military and maintaining your position relies on a security clearance, it’s critical to remember that bad credit could put you in jeopardy of losing your job. Scrutinizing an applicant’s credit history is a standard part of most security clearance review processes, so it’s important to keep yours clean by following good credit habits:
- Pay your bills on time – no exceptions.
- Pay off your credit cards in full every month.
- Apply for new credit sparingly.
- Borrow within your means – don’t take on a mortgage, car loan or any other type of credit that you can’t really afford. This will help you avoid black marks on your credit report caused by a bankruptcy, foreclosure or repossession.
Remember to thank a military member for his or her service this Veterans Day – your support will be much appreciated!
Military family image via Shutterstock