How Military Families Can Improve Their Credit Scores

Military members have many of the same responsibilities as other members of society including financial responsibilities. The credit score is a number that ranges from about 300 to 900 and affects an individual's ability to obtain credit and the interest rate they will pay when they obtain that credit. Repairing, raising and maintaining your credit score is worth it. A 100-point increase in your credit score can potentially save you thousands of dollars in interest over the years.

Check your credit report for errors. AnnualCreditReport.com is the official site that enables consumers to obtain one free credit report from each of the three credit reporting agencies once a year. Instead of getting all three credit reports at the same time, get one credit report from a different agency every four months to keep track of any changes or errors that may occur. Essentially, tracking your credit report throughout the year. If you do find an error on your credit report, report it the credit-reporting agency, in writing, what information you have found inaccurate. Include any supporting documentation, make copies of the letter and send it certified mail.

Pay your bills on time. Do not skip a payment this month only to try to make it up next month. According to J. Montanaro, a Certified Financial Planner for USAA, "35 percent of your credit score is derived from how well you pay your bills on time." If you are going to be deployed or are just poor at paying bills on time, consider setting up an auto-bill pay program through a bank or credit union. If you are having a difficult time 'making-ends-meet' every month, seek guidance through your command's financial counselor. Military financial counselors can help create that monthly budget. If you are truly in over your head you could be referred to a professional debt counselor.

Pay off your debt without accumulating more debt. Pay off low-balance and high-interest consumer credit accounts first. Consider using a debt elimination strategy such as a the "debt snowball". "If you have high outstanding balances on credit cards, it will affect your credit score negatively," said John Gannon, president of FINRA Investor Education Foundation. Quit using the credit cards that make it difficult to pay the bills each month. Keep at least one active credit card to use responsibly. Do not use more than 60 percent of the available credit on any of the credit cards you keep.

Under the Servicemembers' Civil Relief Act, credit you incurred prior to entering service may qualify for a 6 percent interest rate cap, with the appropriate paperwork from your command. Although the law only covers debt incurred prior to entering service, many creditors will lower your interest rate when deployed just by calling and requesting it.

Be leery of credit repair scams. The fact is, you can remove inaccurate information from your own credit report. Companies that promise to clean your credit report, improve your credit score or remove negative information from your credit report may not be truthful. It is illegal to remove accurate information (negative or positive) from a credit report.

If you choose to use a credit repair business, tread carefully. How to stay safe: "Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised."

Additional Resources

AnnualCreditReport.com
Federal Trade Commission

References

Military.com: Servicemembers Civil Relief Act Overview
Military.com: 7 Tips to Boost Your Credit Score
Army Times: To improve credit scores, pay down credit cards first
Federal Trade Commission: Credit Repair: How to Help Yourself: Recognizing a Credit Repair Scam