What you need to know about military credit checks

Are you thinking of joining the army? You probably know that you will have to pass tests related to physical fitness and other abilities.

But you may also need to show that you can overcome some financial hurdles.

As part of your enrollment, you may have to pass a national agency check with local agency checks and a credit check (NACLC) through the Department of Defense Counterintelligence and Security Agency. The credit check is similar to that of a civilian employer, but each branch has slightly different requirements for recruits.

What credit score is required to join the military?

Generally, the military does not look for a specific credit score when determining financial eligibility, but over-indebtedness or late payments can be a red flag for further discussions with your recruiter.

Inductees who have dependents may be required to apply for a “dependency waiver” and show that they have the resources to provide for children or others who rely on them for financial support.

“The military doesn’t want you to turn to them as a last resort when you’re just looking for a job to pay off your debt,” says Galen Bargerstock, founder of the Civil and Civil Service. “They need military personnel who are focused on the goal, which is ultimately to protect the country. They don’t want your mind to be focused on something else, worrying about personal responsibilities when you have to defend the country.”

How does it differ in different branches of the military?

In its financial review, the Coast Guard is looking for proof that the applicant is in order financially at home, says Jonathan Lindberg, Petty Officer First Class on the Coast Guard Recruiting Team. Applicants must not have recent seizures or bankruptcies, and must not have past due payments.

In addition, the Coast Guard requires applicants’ debt-to-income ratio (the ratio of all personal debt, including credit card debt, to gross personal income) based on their projected Coast Guard salary to be below 30% in order for them to join. (The debt-to-income ratio limit for reservists who wish to join the Coast Guard is 80% because these applicants have other sources of income.)

“This is to protect the person who is thinking about joining,” Lindberg says. “Income when you join the army can be very low at first. We just want to make sure we don’t put this person in a difficult position because of financial difficulties.”

The Air Force also looks for signs of financial trouble, such as a history of bankruptcy or bad credit, but their debt-to-income ratio limit is 40%. Applicants whose credit reports contain this type of information will be reviewed by the Squadron Leader, who may ask the applicant for an explanation before making a financial eligibility decision.

The Army, Navy, and Marine Corps generally only conduct credit checks on applicants who must be eligible for security clearance or who require a dependency waiver. But they eschew rigid rules in favor of a personalized approach.

What to do before enrolling and if you get rejected

If you are interested in joining the military, take a look at your finances. Get a free credit report (at AnnualCreditReport.com) to check for errors and see if there are any issues that might give the recruiter pause.

Even if financial problems prevent you from joining the military right away, you can still enlist in the military in the future. In the same way that candidates who do not pass the physical fitness test for military entry can get in shape and reapply, those who do not qualify financially can spend some time paying off their debt and improving their credit history. and then reapply.

What to do after the call

Uncle Sam won’t stop caring about your finances once you join the army. If you take a job that requires security clearance, you are subject to constant financial monitoring by the Department of Defense.

“As you get more responsibility, you may be subject to more scrutiny,” says Doug Nordman, a retired military officer and author of The Military Guide to Financial Independence and Retirement. “By the time you reach the highest clearance level, you not only get an extensive investigation, but unexpected interrogations and routine checks. They are looking for any signs of financial vulnerability.”

Under the background check rules issued in 2018, individuals with a security clearance may be subject to background checks, including financial background checks, at any time. Any red flags, such as a high debt-to-income ratio, can affect that person’s ability to keep clean.

That could be a problem, given a 2019 survey that found that about a third of military personnel or their spouses don’t pay all of their bills on time.

How to keep your finances in order

There are several steps military personnel can take to keep their personal finances from getting in the way of their military career:

Sign up for free credit monitoring

Military personnel have access to free electronic credit monitoring of their accounts. You will need to register by visiting the websites of each of the individual credit reporting agencies: Equifax, Experian and TransUnion.

Set up auto payments

One of the most important things military financial audits look for is wrongdoing. By setting up recurring payments to automatically pay at least the minimum amount, you ensure that you never forget to make a payment. (You will still need to review your bills regularly to make sure all payments are accurate.)

Know your rights

Your military status means you are protected by additional rules when it comes to loans and interest rate caps that can save you thousands of dollars.

Catch? You must apply for preferred rates by contacting your lenders directly.

The Military Civilian Assistance Act limits 6% of any interest rates on loans (credit cards, auto loans, mortgages, etc.) you had prior to enlisting in the military. The War Lending Act applies to new loans and caps interest rates and fees to 36%.

Take Advantage of a Military Credit Card

In addition to federal protection, many credit card issuers offer other benefits to members of the military. For example, with the right military credit card, you can waive annual dues.

You can also get great rates by joining a credit union such as the USAA or the Navy Federal Credit Union that serves the military. These financial institutions may offer low-interest loans to new recruits or other benefits tailored to your specific financial needs.

Use your PFM

Most bases have personal financial management advisors to help members navigate financial matters. PFM may offer individual debt counseling as well as classes or seminars related to financial planning and money management.

bottom line

Some financial problems can be an obstacle to joining the army. But by improving your creditworthiness and paying off your debts, you can improve the impression you make on the recruiter.