Why Your Finances Matter for Military Security Clearance

If you’ve earned a military security clearance, you know how important it is to keep it. Your clearance can affect your chances for promotions, higher pay and even your career.

One of the biggest reasons people lose their clearance is poor financial management. How you handle money shows up in credit reports, bankruptcy records and other public documents.

PCS moves and deployments can cause financial stress, so it’s especially important that service members learn ways to manage their finances to keep their security clearance intact.

Why finances matter

Failing to meet financial obligations can be a sign of poor self-control, lack of judgment or a disregard for rules and regulations. This can raise questions about reliability and trustworthiness around classified information. Financial problems can also lead to unethical or illegal behavior.

That’s why too much debt or unpaid debt can cost you your security clearance. Once you lose it, it’s practically impossible to get it back. If someone has too much debt, they may have to file a special appeal to keep their security clearance.

Security clearance checks

Earning a security clearance does not guarantee you will keep it. The Defense Counterintelligence and Security Agency continuously monitors your information. It automatically pulls and analyzes data, including credit reports and other financial data.

When investigating or monitoring a security clearance, the DCSA will check:

• A history of not meeting financial obligations.
• Deceptive or illegal financial practices such as embezzlement, employee theft, check fraud, income tax evasion, expense account fraud and filing deceptive loan statements.
• Inability or unwillingness to pay debts.
• Unexplained affluence. Someone who suddenly comes into a lot of money may have acquired it illegally.
• Financial problems linked to gambling, drug abuse, alcoholism or other issues of security concern.

Because these issues are rarely clear-cut, federal investigators will look for circumstances that may have been outside your control, such as divorce, job loss, health emergencies or business failure.

Addressing debt

When federal investigators discover problematic debt, they’ll consider what you’re doing (or not doing) to fix things. Taking steps to manage financial issues right away can make a difference in how investigators view you.

• Consider using a nonprofit credit counseling agency to help negotiate lower interest rates or better payment terms.
• Document the steps you’re taking to address the problem so you can explain how you’re being proactive.
• Create a budget that establishes a plan to reduce your debt.
• Make at least the minimum payments to your creditors each month.
• Notify your immediate supervisor/commander of your financial problems and how you’re taking steps to deal with them.
• Call your creditors if you know you’re going to be late with a payment and ask how you can work out a payment plan.
• The Servicemembers Civil Relief Act may allow reduced interest rates on pre-service debts. This can ease the burden of repaying those debts.

Reviewing and cleaning up your credit report

It’s a good idea to monitor your credit reports so you can quickly spot errors or fraud.

• Get a free credit report from each of the three major credit reporting bureaus through annualcreditreport.com. Consider rotating through each bureau by requesting a free credit report every four months.
• If you have an account with a military-affiliated bank, check if it provides free credit score monitoring tools for members. Active-duty service members can also request free credit monitoring directly through the credit bureaus, as required by law under the Fair Credit Reporting Act.
• Consider putting a freeze on your credit reports to help prevent identity thieves from opening lines of credit in your name. When you deploy, put an active-duty alert on your credit report.

You have the right to challenge information on your credit report that you feel is false, obsolete, incomplete or incorrectly entered. The law defines a billing error as any charge:

• For something you didn’t buy or for a purchase made by someone not authorized to use your account.
• For something not properly identified on your bill or for an amount different from the actual purchase price, or for something entered on a date other than the purchase date.
• For something that you did not accept on delivery or that was not delivered to you.
• Involving errors in arithmetic.
• That involves a failure to show a payment or other credit to your account.
• That involves a failure to mail the bill to your current address if you told the creditor about an address change at least 20 days before the end of the billing period.
• That involves questionable items or any item for which you need more information.

Most negative information on your credit report is considered obsolete after seven years (Chapter 7 bankruptcy remains on your credit report for 10 years). To request that inaccurate or obsolete information be removed, write to the credit bureau or submit your dispute online at annualcreditreport.com.

Be sure to include the confirmation number that appears on your credit report in your request. The credit bureau will investigate and remove any errors. It must mail you the results of the investigation within 30 days. Otherwise, the record will be deleted.

You might also consider talking with the creditor directly. The creditor can have the credit bureau correct your report.

If you disagree with the credit bureau’s findings, you can file a consumer statement of 100 words or fewer in your record. Future reports to creditors must include this statement or a summary of it.

Bankruptcy and security clearance

Bankruptcy won’t automatically disqualify you from security clearance. Investigators will look at what prompted it. If the bankruptcy resulted from circumstances beyond your control, like high medical bills, investigators may consider it a legitimate way to work things out. If gambling, a drug habit or other bad behavior caused the bankruptcy, you run a higher risk of losing clearance.

Tax problems and security clearance

Issues with the IRS can cost you your security clearance, whether you owe taxes or failed to file a tax return.

It’s important to show you’re willing to make things right in a timely way. Service members can use Military OneSource’s MilTax free tax software and support, and the Volunteer Income Tax Assistance program.

Monitoring your credit report, addressing problems as they arise and managing your finances are critical to maintaining your military security clearance. Military OneSource offers free financial counseling so you can focus on your mission. Call 800-342-9647 to schedule an appointment, or log in to your account to start a secure online chat. OCONUS/International? View calling options.