Dealing with bad credit as a veteran
Quick insights
- Bad credit doesn’t have to be a permanent condition or a dead end to your financial goals.
- Veterans have access to some useful resources that may be able to help them improve their credit and overall finances.
- Through a combination of effective budgeting, long-term changes to improve your credit, and utilization of the educational and financial resources available to veterans, it may be possible to positively impact your credit score.
There are plenty of stressors in life, whether you’re a veteran or not. Worrying about a low credit score shouldn’t have to be one of them. Let’s explore credit scores, what they influence, and how to improve or maintain them, as well as some resources available to servicemembers.
Credit score models often have credit scoring ranges that go from poor to exceptional. If your credit score falls in the poor category as referenced by some models, you might feel this is "bad credit." While there is technically no definition of a "bad" credit score, in this article the term "bad credit" refers to low credit scores.
Understanding your current financial situation
Having a clear picture of your income and expenses is a step towards financial health. It helps you identify how much money you have coming in, where your money is going and potential adjustments you can make. Below are some tips designed to help you improve a low credit score:
- Budgeting: A budget helps you plan your spending and manage your money effectively. Budgeting can help you keep track of money for your needs, identify areas of overspending and support your planning for future financial goals.
- Savings: Savings act as a financial safety net and may help you handle unexpected expenses without going into debt. Committing money toward a savings plan also helps you to accumulate wealth over time and achieve long-term financial goals, which could include things like home ownership, retirement or paying for your child’s college education.
- Check your credit score: Your credit score is a number ranging from a low of 300 to a high of 850. This numerical representation of your creditworthiness is used by lenders to help decide whether to extend credit (which could be in the form of a mortgage, credit card, auto loan, etc.). Regularly checking your credit score may help you understand where you stand and what you could do to improve your credit health. Your score is made up of a number of factors, including but not limited to these three categories with the largest impact:
- Payment history: Just as the name suggests, payment history refers to a person’s full history of paying bills. This includes on-time payments as well as late or missed payments. On-time payments may contribute to a good credit score.
- Credit utilization ratio: Credit utilization ratio refers to the percentage of your total available credit currently occupied by debt. For instance, if you have a combined credit limit of $10,000 across all your cards and you hold $2,000 of debt, your credit utilization ratio is 20%. A credit utilization ratio at or below 30% will positively impact your score.
- Age of credit: Age of credit refers to the average age across all of your open accounts.
Improving your credit score can take time, but it may also play a role in helping you to reach your financial goals. Some strategies for improving your credit score include paying your bills on time, reducing your debt and regularly checking your credit report for errors.
Financial resources available to veterans
There are a couple of potentially helpful resources tailored toward assisting veterans with their finances, including the following:
- VA loans: VA loans are mortgage loans designed for veterans, which often come with lower interest rates, no down payments and potentially more favorable terms than conventional loans.
- Financial counseling services for veterans: Many organizations offer free or low-cost financial counseling services to veterans. These services may help you understand your financial situation, create a budget and develop a plan to help improve your financial health. There are many non-profit and government organizations that offer services to help veterans improve their financial health through financial counseling, debt management programs and financial education resources. These organizations include government agencies like the U.S. Veterans Benefits Administration, the National Foundation for Credit Counseling, and organizations like Military Onesource and veteransdebtassistance.org.
- Veterans’ credit card benefits: Some credit card companies offer cards specifically designed for veterans, with benefits such as lower interest rates and low annual fees.
Resources while in active duty
Active servicemembers may also have access additional resources to help manage their debt. For example, The Servicemembers Civil Relief Act (SCRAOpens overlay) provides legal protections to active-duty military members, including caps on interest rates for credit card debt and other types of debt.
The bottom line
As a veteran, you may have access to resources to help improve your financial health that are not available to non-military. It might be helpful to start by educating yourself about all of the options before coming up with a plan to reach your financial goals in both the short and long term. Bad credit doesn’t have to be the end of your financial goals; rather, addressing it may be a first step on the road toward making your financial dreams into a reality.
