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Your Credit History Has A Direct Impact on Your DoD Security Clearance
1. For the purpose of obtaining and holding a security clearance, your personal financial management has always been scrutinized by the Department of Defense.
DoD's views a lack of fiscal responsibility as...
"Failure or inability to live within one's means, satisfy debts, and meet financial obligations." "This may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual's reliability, trustworthiness and ability to protect classified information."
2. There are ten circumstances that will put your security clearance (and your future military service) in danger:
a. Unable or unwilling to resolve debts.- Your inability or unwillingness to satisfy debts
b. Frivolous or irresponsible spending - Indebtedness caused by frivolous or irresponsible spending and the absence of any evidence of willingness or intent to pay the debt or establish a realistic plan to pay the debt.
c. Recurrent pattern of financial instability - A history of not meeting financial obligations.
d. Deceptive or illegal practices - Deceptive or illegal financial practices such as embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.
e. Living beyond one's means - Consistent spending beyond one's means, which may be indicated by excessive indebtedness, significant negative cash flow, high debt - to - income ratio (30% or above), and/or other financial analysis.
f. Financial problems linked to other security concerns - Financial problems that are linked to drug abuse, alcoholism, gambling problems, or other issues of security concern.
g. Failure to file taxes - Failure to file annual Federal, state, or local income tax returns as required or the fraudulent filing of the same.
h. Unexplained affluence - Unexplained affluence, shown be a lifestyle or standard of living, increase in net worth, or money transfers that cannot be explained by subject's know legal sources of income.
i. Compulsive or addictive gambling - Compulsive or addictive gambling as indicated by an unsuccessful attempt to stop gambling by "chasing losses" (i.e. increasing the bets or returning another day in an effort to get even), concealment of gambling losses, borrowing money to fund gambling or pay gambling debts, family conflict or other problems caused by gambling.
j. Bankruptcy - Filing for personal bankruptcy means the odds are likely you will lose your Top Secret clearance.
3. DoD will conduct a security clearance "audit" on military and civilian personnel - every ten years for "Secret" and five years for "Top Secret" clearances.
The time lapse between audits means that in most cases, you will have enough time to repair your credit history and document the steps you have made to correct your financial instability. There are six circumstances that may mitigate disqualifying information in your Department of Defense audit.
The six circumstances are:
a. The behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur and does not cast doubt on the individual's current reliability, trustworthiness, or good judgment.
b. The conditions that resulted in the financial problem were largely beyond their person's control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation), and the individual acted responsibly under the circumstances.
c. The person has received or is receiving counseling for the problem and/or there are clear indications that the problem is being resolved or is under control.
d. The individual initiated a good- faith effort to repay overdue creditors or otherwise resolve debts.
e. The individual has a reasonable basis to dispute the legitimacy of the past due debt which is the cause of the problem and provides documented proof to substantiate the basis of the dispute or provides evidence of actions to resolve the issue.
f. The affluence resulted form a legal source of income.
Go to: PART II "Repairing My Credit History & Understanding My Credit Report" |
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Repairing Your Credit History & Understanding Your Credit Report
1. If you are planning for, or have begun a personal bankruptcy, it is important that inform your attorney that you have a security clearance.
For others who are behind in debt payments, it is important that you act now. Begin by making an appoint with your Wing Family Programs (WFP) office at 602-302-9094 or email 161FamilyPrograms@azphoe.ang.af.mil.
2. The process begins by reviewing your credit score and credit report. The report is free and can be done in your office via a secure internet connection, or in the privacy of the Wing Family Programs office (Building 10, Room 221). WFP cannot pull your credit report without your being present. WFP cannot pull your credit report by your request over the telephone. You must be present to examine your credit report. One credit report is provided by DoD every twelve months, for free.
3. Your credit score is determined by five separate areas. They are:
a. "Public Records/Collections" - Any foreclosures, bad debt, law suits will be listed here.
b. "Missed Payments" - Listed as "30 days late," "30-60 days late" and "over 90 days late." This area does the most damage to your overall credit score. One late payment will damage your score for up to 36 months, and remain on your report for seven years. Note: CELL PHONE COMPANIES REPORT EVERY 30 DAYS.
c. "Account Age"- "Old credit equals good credit." Don't close old credit accounts. Keep the balance at "zero", cut up the credit card or place in safe place.
d. "Account Balances" - Having a high credit limit with a low account balance (what you owe) is "golden." However high account balances affect your debt to income ratio negatively. New rules for 2009, lenders are focusing primarily on your outstanding balances and not just on your on-time payment record. See 5b below on how to reduce your debt to income ratio.
e. "Inquiries" - When you apply for a new line of credit, either a credit card or auto loan for example, an official "inquiry" is noted in your report. One or two a year is deemed reasonable to the Credit Bureau, however several in one year will affect your score negatively. This is where you will find attempts to steal your identity (opening new accounts without your authorization).
4. The credit report service used by DoD, has five areas that will help you manage your credit history. First, you be provided your overall credit score (everyone starts with 676). Second, a detailed "Score Analysis" is provided. This shows how and why your score rose above 676 (points added for paying bills on time), or why it has been lowered (points taken away for late payments, etc.). Third, your "Report Analysis" examines each and every debt for your entire credit history. It also tallies your credit limits and credit balances. Fourth, a personal account-by-account "Action Plan" is provided, to assist you improving your credit score. It could be as simple as notifying your credit company of an address change. Fifth and last, a "Dispute Checklist" allows you to submit disputes to items within your credit report instantly online.
5. Free Advice. For a DoD certified financial counselor - contact Glenn Klassen at 602-302-9094; Luke Air Force Base Family Assistance at 623-856-6550 or contact Military OneSource at 1-800-342-9647.
a. Late or missing payments are hazardous to your credit score. Ensure you have "automatic bill pay" set up with your financial institution for all credit accounts.
b. Reduce your debt to income ratio. Look at your credit card statements. Organize your credit from the highest interest paid - to your lowest interest paid. Pay the monthly minimum on all of them, however, take the highest interest account, and add and additional $100 or more each month, until it's paid off (even if it takes years). When this account is paid in full, place the card in a safe place, but don't close the account. Then do the same with the next account, and the next, until your debt to income ratio has improved substantially.
c. Monitor your credit score. The law allows you a free credit report annually from each Credit Reporting Agency. You can get your own free credit report up to three times a year. An easy way to remember this is on Valentines Day, contact "Experian" (formerly TRW) 1-800 397-3742 www.experian.com; On Memorial Day week, contact "TransUnion" 1800-888-4213 www.transunion.com; on Labor Day week, contact "Equifax" 1800-685-1111 www.equifax.com. You will be able to clean up errors as you find them - errors can drag down your credit score- and you'll also keep an eye out for identity theft.
d. A solid credit report starts with a good foundation. If you are just starting to establish a credit history, open at least three important accounts; a revolving account (a.k.a "signature" account that is unsecured - no collateral); a major credit card (Visa, American Express, Discover and MasterCard); and a mortgage (homeowner). If you don't own a home, establish more of the first two accounts, and keep the balances low or at zero.
e. For future loans in 2009, you will need to maintain a minimum score of 740 out of a possible 850, for the best interest rates or terms . |
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Your Credit History Part 1 