Image courtesy of U.S. Department of Defense
Military Veterans make mistakes with their credit just like everyone else. But some situations make credit a little trickier for those who have served in the U.S. military.
Things change when you leave the military: benefits, employment, and income to name a few. It’s a lot of transition. And in all the transition, they can make mistakes that will hurt their credit.
Here are the top 5 mistakes I see Veterans make with their credit and some of the best ways to fix the problem or avoid them altogether.
A decrease in income is, unfortunately, the sad reality for many Veterans leaving the military. I went through it myself, twice - once after I separated from the Air Force and again when my husband left the Army.
The transition out of the military is no joke; it’s a serious life change. The key word here is "change." Life is changing and that means you need to adjust to the changes. Spending habits are at the top of the list.
Spending more money than you make is a credit mistake Veterans make. They’re trying to keep up the lifestyle they had in the military. And to do that, they start to charge a few things here and there on their credit card. Then something comes up and they need to put that on their credit card, too. After that, using credit to get by becomes a habit - to the point where credit cards are maxed out or they have problems making minimum payments.
See our related article about lesser-known ways Servicemembers can save money.
Making on-time payments accounts for 35% of your credit score. So not paying your bills on time is going to drag it down. There are a few reasons Veterans don’t make timely payments: they forget, don’t have the money (remember that decrease in income from #1), or don’t have the entire payment.
Another, harder, reason is they’re unwilling to face the reality of their debt. I’ve had clients (yes, more than one) come in with garbage bags full of mail they’ve never opened. You can’t pay your bills on time if you never look at them.
Not facing your debt or making it a priority won’t make the problem or the debt go away. Instead, it tarnishes your “financial good name”, A.K.A your credit score.
There’s nothing wrong with wanting to help family members with money. It only becomes a problem when it starts to hurt you financially. Unfortunately this happens to many Veterans: family members will make late or no payments on the debt you signed for. In the military community, this happens frequently due to the high number of Servicemembers and Veterans helping their family with monthly bills.
When you co-sign for a family member or a friend, you’re hitching your "financial wagon" to them. You’re essentially saying, "if they don’t make the payment, I will." Co-signing is putting your credit on the line to help them build their credit up. Before you co-sign for anyone, you have to be ready to make their payment if they don’t.
Applying for every store credit card is a nasty habit to get into. It not only decreases your credit score, but it can also hurt your finances. Let's go back to mistake number one: Veterans often have a decrease in income when they leave the military.
Getting a new credit card can often seem like a way around the lack of money, especially when every store you shop at is offering a credit card that’ll save you money on that purchase. Don’t even listen to the pitch from the salesperson. It’s a trap. Run.
You have to think long term when it comes to your money. Yes, it may save you a little money on that one purchase but it will affect your finances in the months or years to come. Not to mention it tempts you to spend more money than you have budgeted for.
Checking your credit score and report is extremely important for Veterans due to the frequent moving they did on active duty. Living in different places means applying for different credit, or changing addresses, or forgetting bills. And because of that, mistakes are often made. When you don’t check your credit score frequently, that means those mistakes are not caught early and can hurt your credit.
Think of your credit score as your NFL draft ranking. The lower your score, the fewer teams want you. When your credit score is high, you have more opportunities for not just credit but credit at a lower interest rate.
Lacey Langford is an Accredited Financial Counselor® and a candidate for CFP® certification with over ten years experience in financial counseling and coaching. She served four years in the U.S. Air Force and holds a B.S. in Business Administration with a concentration in finance as well as an Executive Certificate in Financial Planning from Duke University.
U.S. Air Force Tech. Sgt. Jimmy Curtis, right, a financial management technician with the 118th Wing, Tennessee Air National Guard, poses for a photo with Larry Meeks, a U.S. Army veteran, on Dec. 13, 2018 at the Nashville Veterans Affairs Medical Center in Nashville, Tennessee. U.S. Air National Guard photo by Staff Sgt. Anthony Agosti. The appearance of U.S. Department of Defense (DoD) visual information does not imply or constitute DoD endorsement.