Written by: Andrew Sorrell, Family Financial Counseling Student Intern, University of Kentucky
Edited by: Kristen Jowers, MS & Nichole Huff, Ph.D., CFLE
Credit Education Is Critical for Military Families
Financial service providers and educators working with military families play a crucial role in helping service members understand credit and build credit confidence through credit education. Navigating the complexities of credit can help service members feel more prepared for the financial demands of life in the military (e.g., frequent relocations, housing, vehicle, and other major purchases).
The Credit Struggles Unique to Military Families
The Consumer Financial Protection Bureau (CFPB, 2023) reports that nearly 40% of service members’ credit scores are negatively impacted by missed or delayed payments. These challenges can make it harder for families to qualify for loans or secure affordable housing, further emphasizing the need for targeted credit education.
Credit scores are determined based on several key factors:
- Payment History: The consistency of on-time payments.
- Amounts Owed: The total debt compared to available credit.
- Length of Credit History: How long an individual has been using credit.
- New Credit: Recent applications for credit.
- Credit Mix: The variety of credit accounts, such as mortgages, credit cards, or auto loans.
For military families, helping them understand these factors will enable them to make informed decisions and take control of their financial futures.
Financial Literacy Leads to Better Credit Outcomes
Research consistently shows that financial literacy is key to better credit management. According to the National Endowment for Financial Education (2022), individuals with a strong understanding of financial concepts, including credit, are more likely to make sound financial decisions, such as paying bills on time, avoiding high-interest loans, and monitoring credit reports regularly. Educating military families on these concepts will help them build healthier credit habits and avoid costly mistakes.
Practical Steps for Building and Maintaining Credit
It’s important to equip military families with practical strategies for maintaining and improving their credit scores, which are:
- Check Credit Reports Regularly: Encourage them to review their credit reports annually at AnnualCreditReport.com.
- Set Payment Reminders: Recommend setting up automated payments or calendar reminders to ensure timely payments.
- Avoid Unnecessary Credit Applications: Discourage military families from applying for new credit unless necessary, as each inquiry can impact their credit score.
- Keep Balances Low: Advise families to maintain low credit card balances relative to their credit limits to avoid negatively impacting their credit scores.
Service members can also utilize an active-duty fraud alert, freezing their account for up to one year or the length of their deployment. The active-duty alert is a type of credit freeze that prevents new accounts from being created while deployed and requires additional identity verification steps.
Next Steps: Encourage Clients to Act
To build credit confidence, consider introducing an activity where families review their credit reports together or create a simple checklist that military families can follow to track their credit health. By providing actionable steps, you can empower military families to take control of their credit, build stronger financial habits, and ultimately achieve greater financial security.
For more information, read: Credit and Debt Repayment “Need to Knows” for Military Families.
References
Consumer Financial Protection Bureau. (2023). Your Credit Report & Credit Score. https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/
National Endowment for Financial Education. (2022). The Role of Financial Education in Enhancing Credit Management. https://www.nefe.org/
Federal Trade Commission. (n.d.). Credit Scores. https://consumer.ftc.gov/articles/credit-scores
U.S. Department of Housing and Urban Development (HUD). (2023). Credit Counseling and Education. https://www.hud.gov/program_offices/housing/sfh/hsw/counsel
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