Military members, dependents, and military spouses are especially vulnerable to credit problems like identity theft, the potential for lost or stolen cards and personal information, and many other problems.
Fortunately, there are steps you can take to save your credit rating even if you are compromised, miss a payment, or have related issues. Credit and credit ratings are tricky but there are some very simple steps you can take that directly safeguard your credit.
It is very important to stress that these are steps all consumers should take themselves. Fixing your credit is FREE and you do not need to pay a third party to help you take the simple credit repair steps below.
Save Your Credit Rating by Knowing Your Credit Reports
First and foremost, reviewing copies of your credit reports regularly protects you from being the victim of identity theft, and to make certain there are no outdated items on your report, errors, etc.
For added protection, know the contents of your credit reports and follow the five tips below. It is that simple.
Tip #5: Set A Payment Schedule
Among the top three causes of bad credit scores, late and missed payments are serious issues. If you have missed or late payments on your credit record in the 12 months leading up to a major credit application like a VA mortgage or an auto loan, your chances at loan approval are seriously compromised.
Do not apply for loans if you have late and missed payments in that 12 months, wait out your payment record until you have a full 12 months of “clean” payment record on the books for best results.
The best way to achieve a clean payment record? Military members, dependents, and spouses should set up auto-deduct payments, ACH transfers, allotments, or any other automated payment process to handle your accounts each month on-time every time.
Tip #4: Create An Emergency Fund
One of the biggest sources of stress is last-minute expenses that force you to dip into your bank account, potentially affecting your monthly budget.
This can be a serious issue, which is why it’s best to establish a separate bank account and fund for such emergencies when considering Tip #5.
It can be tough to do this in the middle of a typical military assignment. For example, when military members get PCS orders, they have the ability to request advance pay (basically an interest-free pay advance that is repaid in monthly installments over a year) and set up as a small fund for this purpose.
You can do the same thing with a reenlistment bonus, special pays or allowances, etc. The key is to pay attention to times when you may be due extra money from the Department of Defense and plan accordingly (e.g., annual clothing allowance.)
Tip #3: Reduce Your Credit Card Balances
Your credit report has a ton of useful information: lenders, X number of credit cards and other accounts. It also shows what your credit limits are, and the percentage of used credit limit.
Lenders often look at the borrower’s used credit lines before approving new lines of credit or loans. Ideally, you should reduce your credit card use so that you are well under 50% of your credit limit. As a general rule, 30% is the maximum, but it’s best to reduce the amount halfway below your credit amount.
That will still help improve your credit over time. Carrying high balances on your credit cards does not help you when applying for an auto loan or a VA mortgage.
The credit utilization rate, which calculates the percentage of your credit use across all accounts, is used to determine your credit. If you have three credit cards, your credit utilization rate may be high if there are higher balances.
However, the credit reporting agency, Experian, reports you can change that ratio in a very simple way.
Before applying for credit, a va loan etc., make a payment to your account before your card’s statement closing date, instead of on or before its payment due date. Card issuer’s typically report the statement closing date balance to the credit bureaus on the statement date. Thus, even if you pay off your credit balance before the due date your credit report may still show a balance which will effect the utilization percentage used to calculate your credit score.
Tip #4: Add Some Credit
Some credit users don’t have enough credit to their name–they simply don’t have enough of a credit track record to show a lender they are a good credit risk. Other credit users may have a few credit cards but carry high balances. In both cases, adding a credit account may be a good idea.
It’s never a good plan to apply for new credit just ahead of or during a major credit application. Adding a credit account is something that should be done in the planning stages for a new mortgage or car loan, a year before or more is ideal.
The credit agency Experian says on its official site that consumers can legally improve their credit utilization rate by “raising your credit limit on an existing account or opening a new credit account”.
Credit utilization rates are calculated based on all your available accounts. If you have five credit accounts and carry a balance of 50% on each account, adding a new one or increasing the credit limit on an existing account affects the calculation, lowering the utilization rate. This may sound like a bit of creative accounting, but the math and the rationale can definitely help you improve your credit.
Tip #5: Get Help
Military bases, college campuses, and even lenders may offer classes and seminars on improving credit, becoming ready for a home loan, saving money, budgeting, and other key areas.
Your city and state government may have stateside programs open to first-time home buyers, new investors, and other categories of people hoping to learn better money management, credit repair, and investing skills.
A financial planner, tax expert, or investment advisor may be able to help you find or use resources in your local area to get more informed on good credit practices and how to repair your credit yourself and for free.
Credit and financial resources for military members and their families include the following:
- Servicemembers Civil Relief Act
- Free annual credit reports (the only source of free credit reports authorized by federal law)
- Defense Finance and Accounting Service
- VA family member benefits
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.