Trans World Assurance Blog

Security Clearance Debt Concerns & Solutions (Part 3) by Jeff Burch

Posted on Mon, Dec 26, 2011

Previous Article - Part 2

Part 3. Solutions and assistance that can mitigate financial concerns:

Conscientious participation in credit counseling or a debt consolidation program can significantly mitigate financial concerns. Consistent, systematic, documented good faith efforts to repay or otherwise resolve debts without formal counseling will have the same effect. If it is obvious that the subject is only taking such actions to get or retain a security clearance, it will do little to convince Central Adjudication Facilities (CAF) that the problem is unlikely to recur once the clearance is granted. Therefore, efforts to resolve financial problems should begin as soon as possible. Obviously, the earlier corrective action is taken, the more likely the problem can be fully mitigated.

For further assistance, contact a reputable nonprofit 501(c)(3) Credit Counseling Agency (CCA) that has extensive experience assisting soldiers in protecting or saving their security clearance. In most cases, they can negotiate a debt repayment plan with your collectors and put these accounts on a Debt Management Plan (DMP) to be paid off as quickly as your budget allows. A CCA can provide you with a detailed report that lists all your consolidated accounts, contact information, payment amounts, and projected pay off dates. This minimizes financial risk associated with your career and aids in the acceptance of your security clearance.


Security Clearance Debt Concerns & Solutions was written by Jeff Burch. Be sure to check out the other articles on the Trans World Assurance blog written by Jeff Burch.

Tags: Money Book, Jeff Burch, establish credit, military, Security Clearance, debt

Security Clearance Debt Concerns & Solutions (Part 2) By Jeff Burch

Posted on Sat, Dec 24, 2011

Previous Article - Part 1

Part 2. What "patterns" adjudicators look for in a Personal Security Investigation (PSI):

Adjudicators follow the "whole-person" concept and look for "patterns" of irresponsibility in a PSI. A bankruptcy or foreclosure can be considered a non-issue if the financial crisis stemmed largely from circumstances beyond the subject's control and is unlikely to recur or the subject acted in a reasonable and responsible manner.

Example: If a subject has never had financial problems in the past, but got into trouble with a lender because his/her home is currently worth less than the mortgage loan due to a market downturn, and then (gulp) received PCS orders, this would tend to be considered a mitigating condition. However, if a subject going through foreclosure has a prior history of not meeting financial obligations documented in previous investigations, this suggests a pattern of financial irresponsibility that cannot be easily brushed aside. Likewise, a soldier who obtained a loan by overstating income or committed other types of loan fraud may find it difficult to convince the adjudicators that he/she was just an innocent victim of circumstances beyond their control.

 Adjudicators understand that financial problems often arise due to situations beyond the investigation subject's control, such as serious illness/disability, divorce, loss of income, crime, business downturn, and natural disasters. Again, if a person acts reasonably and responsibly under the circumstances (including bankruptcy, when necessary) to resolve their debts, the financial issue can be mitigated. The debts do not have to be fully resolved at the time of adjudication, but there should be "verifiable uninterrupted efforts" toward this goal. Response to debt is evaluated by the things people do (or don't do) about delinquent debt. How people deal with delinquent debt is often a decisive consideration, because it is viewed by adjudicators as an indication of their trustworthiness and reliability. Those who disregard their financial obligations may also disregard their responsibility to safeguard classified information. The following is a list of common indicators of irresponsibility and unethical behavior:

• Changing address without notifying creditors
• Failure to take reasonable measures to pay or reduce debts
• Knowingly issuing bad checks
• Increased credit card use immediately before filing for bankruptcy

 

Security Clearance Debt Concerns & Solutions by Jeff Burch will continue tomorrow on the Trans World Assurance Blog with Part 3 - Solutions and assistance that can mitigate financial concerns.

Tags: Money Book, Jeff Burch, establish credit, military, Security Clearance, debt

Security Clearance Debt Concerns & Solutions (Part 1) By Jeff Burch

Posted on Fri, Dec 23, 2011

Previous Article - Introduction

Part 1. Concerns and issues that can occur if you're not proactive with your security clearance:

A. Financial concerns: 

Failure or inability to live within one’s means, satisfy debts, and meet financial obligations 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. An individual who is financially overextended is at risk of engaging in illegal acts to generate funds. Compulsive gambling is a concern as it may lead to financial crimes including espionage. Affluence that cannot be explained by known sources of income is also a security concern. It may indicate proceeds from financially profitable criminal acts.
 
B. Conditions that raise security concerns and may lead to disqualification:

• Inability or unwillingness to satisfy debts
• 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  
• 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, filing deceptive loan statements, and other intentional financial breaches of trust
• Consistent spending beyond one’s means, which may be indicated by excessive indebtedness, significant negative cash flow, high debt-to-income ratio, and/or other financial analysis
• Financial problems that are linked to drug abuse, alcoholism, gambling problems, or other issues of security concern
• Failure to file annual Federal, state, or local income tax returns as required or the fraudulent filing of the same
• Unexplained affluence, as shown by a lifestyle or standard of living, increase in net worth, or money transfers that cannot be explained by subject's known legal sources of income
• Compulsive or addictive gambling as indicated by an unsuccessful attempt to stop gambling, concealment of losses, borrowing money to fund gambling or pay gambling debts, family conflict or other problems caused by gambling

C. Conditions that could mitigate security concerns:

• 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
• The conditions that resulted in the financial problem were largely beyond the 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
• 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
• The individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts
• 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 taken to resolve the issue
• The affluence resulted from a legal source of income

 

Security Clearance Debt Concerns & Solutions by Jeff Burch will continue tomorrow on the Trans World Assurance Blog with Part 2 - What "patterns" adjudicators look for in a Personal Security Investigation (PSI).

Tags: Money Book, Jeff Burch, establish credit, military, Security Clearance, debt

Security Clearance Debt Concerns & Solutions (Intro) by Jeff Burch

Posted on Thu, Dec 22, 2011

INTRODUCTION

A security clearance is a status granted to individuals allowing them access to classified information, i.e., state secrets, or to restricted areas after completion of a thorough background check. Additionally, a security clearance can be a lucrative commodity to retain after service separation for future employment opportunities.

To apply for Military Security Clearance one must fill out and complete Standard Form 86 (www.opm. gov/Forms/pdf_fill/SF86_July2008.pdf).

Included in the SF 86 questionnaire is Section 26 that concerns your financial records within the last 7 years, and asks for full disclosure of all financial obligations, including those in which you are a cosigner or guarantor. Questions asked pertain to bankruptcy, repossessions, liens, unpaid judgments, wages garnished, 90/180 days current or past due/delinquent accounts, etc. Dire consequences may come about if discrepancies arise.

Example: A soldier marks "no" to all Section 26 questions, assuming he had paid all his bills on time, never been late, etc. But 3 years prior when splitting a townhouse rental with 3 other people, the cable was in his name. When he moved out, he told the roommates to return the cable box. They never did and the cable company marked him down for an unpaid return 3 years ago. Fast forward 5 years and the US Government pulls his credit and sees the discrepancy. The soldier has lied (unknowingly) on his SF 86 and they discharge him from service.

 

Security Clearance Debt Concerns & Solutions by Jeff Burch will continue tomorrow on the Trans World Assurance Blog with Part 1 - Concerns and issues that can occur if you're not proactive with your security clearance.

Tags: credit history, Money Book, Jeff Burch, establish credit, military, Security Clearance, debt

Big Credit Mistakes to Avoid (Money Book, Jeff Burch)

Posted on Fri, Mar 25, 2011

 

  • Canceling old credit cards: If 15% of your credit score depends on length of credit history, it’s deemed a big mistake to cancel old credit cards. In addition, canceling an old credit card can worsen your debt ratio (makes up 30% of your score), if you have balances on other cards. Finally, if you don’t have credit cards older than seven years, do not cancel your oldest credit card.
  • Late on payments: Since 35% of your score depends on payment history and only payments over thirty days late affect your score, it is critical to pay on time. One late credit card payment can drop your credit score by 20 points, missing a car payment can down your credit score by nearly 100 points and if auto payment is late by 90 days or more it can plunge another 25 points. Therefore, if you’re going to be late on any loan, contact your lender ASAP and work out a deal, most are very understanding. If that doesn’t work, borrow from your savings, family or friends to keep current or juggle payments a bit, but make sure you’re not too late on any one loan.
  • Having too many open lines of credit: 10% of your score comes from the types of credit used. If you have a lot of revolving credit, creditors see you as a risk, as you have the potential to rack up a lot of debt quickly. Make it a policy not to open any store credit cards, and if you have some already cancel them once they’re paid off.
  • Maxing out cards: 30% of your credit score depends on the ratio of credit card debt and limits. Therefore, maxing out cards will cause your credit score to drop, even if you keep up with the payments. Instead of charging more, focus on paying down cards.
  • Avoiding credit cards: If you are avoiding credit cards, you should still consider getting one to start or improve credit history. Purchase gas with the card and pay it off in full each month. Having a solid credit score will be useful later when you are ready to purchase a home, car, etc., at lower interest rates.
  • Requesting credit limit reduction: Never reduce your credit limit on cards, because it will affect your debt ratio and lower your credit score. Only set a limit reduction if it has a huge psychological value for you.
  • Not researching a credit counseling service: If you intend to use a credit counseling service, find legitimate credit counseling services listed in the Yellow pages, Google, etc. and follow up with the Better Business Bureau for any complaints. Remember, your credit score will affect many of your financial moves for years, so do not skimp on research.
  • Declaring bankruptcy: With new bankruptcy laws now in effect, people who would have gone forward with bankruptcy before the law now must go through credit counseling before filing bankruptcy. Bankruptcy can decimate your credit score for 10 years. Quite often, there are better solutions, such as negotiating with creditors and so forth.
  • Playing credit card roulette: Rolling credit debt to other credit cards can seriously damage your credit score, if you are not an expert. If you make an error, your credit score could easily be blown up.
  • Never checking credit report: Since 25% of credit reports contain errors (that are serious enough to deny credit), and identity theft is common today, therefore, it would be wise to get your free credit report from www.annualcreditreport.com at least once a year, and correct any mistakes on the report.

 

This is the final article in a series of articles on Credit Scores from the Money Book by Jeff Burch. To download a pdf of the entire series, click on the link below.

Download Credit Article

Tags: Trans World Assurance, credit history, Money Book, Jeff Burch, establish credit, military

Tips to Improve Credit Scores (Money Book, Jeff Burch)

Posted on Thu, Mar 24, 2011

 

Improve Credit Scores:

Here are a few reasons why it’s in your best interest to improve credit scores:

  • Lower your interest rates, auto insurance
  • Speed up credit approvals 
  • Reduce deposits required by utilities 
  • Get approved for apartments 
  • Get better credit offers, car loan, mortgage, etc.
Payment History:
  • Pay on time. If you can’t, notify your lender ASAP and work something out 
  • Get current on past due accounts 

Amounts Owed:

  • Keep balances low (35%) on credit cards. High debt levels can hurt your score and other “revolving credit.” 
  • Apply for and open new credit accounts only as needed.

Length of Credit:

  • Keep old accounts open if you’ve been a good borrower. 
  • Start building credit ASAP.

New Credit Category:

  • When shopping for new credit, keep it all within 14 days or less.  
  • If credit history is bad you can improve credit scores by opening a new account and managing it responsibly.

Types of Credit: 

  • Installment debt (fixed monthly payments to eliminate debt) is “better” than revolving debt (open-ended debt).  
  • Certain finance company debts (buying product with retailer financing) can lower your score.

Bottom Line:

Have patience, because it takes time and discipline to improve credit scores.

 

This series of articles from the Money Book by Jeff Burch will continue tomorrow with an article titled Big Credit Mistakes To Avoid.

Tags: Trans World Assurance, credit history, Money Book, Jeff Burch, establish credit, military

VantageScore and FICO (Money Book, Jeff Burch)

Posted on Wed, Mar 23, 2011

 

VANTAGESCORE (www.vantagescore.com)
VantageScore is a new scoring technique, the first one that was developed collaboratively by the three credit reporting companies. This model provides a more predictive score for consumers, even for those with limited credit histories, which reduces the essential need for creditors to manually review credit information.

VantageScore features a common score range of 501-990 (higher scores represent lower likelihood of potential risk). A key benefit of VantageScore is that as long as the three major credit bureaus have the same information regarding your credit history, you will receive the same score from each. A different score alerts you that there are discrepancies in your report.

FICO (www.myfico.com)
Historically, FICO has been the most well known credit scoring system. The information in your credit report is used to calculate your FICO credit score, a number generally between 300 and 850 that rates how risky a borrower you are. The higher your score, the less risk you pose to creditors. Your FICO score is available from www.myfico.com for a fee.

FICO SCORING SYSTEM
FICO score is based on your financial history as collected in your credit report. Creditors can use this score to evaluate whether you are able to pay a loan back on time. The higher the score the more likely you are to pay off a loan on time and the less of a credit risk you pose.

The FICO or credit score ranges are broken down as follows:
720-850 - This represent the best score range
700-719 - Able to obtain favorable financing terms
675-699 - This is still considered a decent score range
620-674 - May have trouble getting good credit terms
560-619 - May have trouble securing credit
500-559 - Time to work on improving your score

FICO FORMULA
Although the exact formulas for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following five components and the approximate weighted contribution of each:

  • Payment History – 35%
    (only includes payments later than 30 days past due) 
  • Amounts Owed – 30%
    (credit card balances, etc. & credit limits, debt ratio) 
  • Length of Credit History – 15% 
  • Types of Credit Used – 10%
    (installment, revolving, consumer finance) 
  • New Credit – 10%
    (amount of new credit recently obtained)

 

This series of articles from the Money Book by Jeff Burch will continue tomorrow with an article titled Tips to Improve Credit Scores.

Tags: Trans World Assurance, credit history, Money Book, Jeff Burch, establish credit, military

How the Credit System Works (Jeff Burch, Money Book)

Posted on Tue, Mar 22, 2011

 

The largest and foremost Credit Reporting Agencies (CRA’s) are Equifax, Experian, and TransUnion. They are the main companies that collect, compile, and store information on individual consumers that allows them to produce a credit score. It is estimated that these agencies have credit information on almost 200 million Americans.

The CRA’s are constantly in contact with banks, credit unions, finance companies, and other lenders who continually update them on the status of an individual’s account. This allows them to track the payment status and balances of your credit cards, auto loans, and mortgages. In addition, the CRA’s hire teams of professionals to inspect court records to track down bankruptcy information, civil judgments, or tax liens.

After collecting and compiling the data, the CRA then applies a formula to determine each individual’s credit score.

What can hurt and lower your credit score?

  • Late payments 
  • Having a high amount of debt or credit 
  • All derogatory information in your file

Most negative information will stay on your credit report for seven years, but Bankruptcy is held in your file for ten years.

 

HOW TO ORDER YOUR CREDIT REPORT & SCORE

The federal Fair Credit Reporting Act requires each of the major credit reporting bureaus to provide consumers with a free copy of their credit report, once every 12 months.

To order your free report, go through www.annualcreditreport.com or call 877-322-8228 (toll free).

If you space your free reports correctly you can get one every 4 months.

Example:

  • March report from EXPERIAN 
  • July report from TRANSUNION 
  • November from EQUIFAX

Although your free credit report will allow you to check your credit report for errors, it will not tell you your credit score. To acquire your score, each CCR maintains a website on which they sell credit reports that contain your score.  

Equifax: (800) 685-1111 - www.equifax.com  
Experian: (888) 397-3742 - www.experian.com  
TransUnion: (800) 888-4213 - www.transunion.com

 

This series of articles from the Money Book by Jeff Burch will continue tomorrow with an article titled Vantage Score and FICO.

Tags: Trans World Assurance, credit history, Money Book, Jeff Burch, establish credit, military

Building a Good Credit Score & History (Jeff Burch, Money Book)

Posted on Mon, Mar 21, 2011

 

This week at the Trans World Assurance blog we will feature a series of articles on building a good credit score from Jeff Burch's Survival Tactics Money Book. This book is written for members of the U.S. Military and is filled with useful strategies on how to stretch, save & spend your paycheck.

"Credit has become a significant part of many people’s financial lives. When purchasing a car or house on credit, your credit rating will be the number one factor in qualifying for loans from lenders. Having good credit will allow you to borrow money, but more importantly, at lower interest rates. Having a low score typically triggers higher interest rates that can cost you lots of money. Therefore, it’s in your best interest to have and maintain the best credit score possible. Because having a good score is important, it’s crucial to understand how the credit reporting system works." (Jeff Burch, Money Book)

The TWA blog articles this week will cover the following four topics:

  1. HOW THE CREDIT SYSTEM WORKS
  2. VANTAGESCORE and FICO
  3. TIPS TO IMPROVE CREDIT SCORES
  4. BIG CREDIT MISTAKES TO AVOID
Be sure to follow the blog all week, to read all of the articles an this important topic.

Tags: Trans World Assurance, credit history, Money Book, Jeff Burch, establish credit, military

How to Establish or Re-establish Credit (Money Book, Jeff Burch)

Posted on Fri, Mar 11, 2011


Credit can be a valuable financial tool that allows you to purchase items, while promising to pay with future income. However, in order to use credit, you must first establish a credit history that ensures that you are capable of paying current or future obligations. There are several ways to establish credit (some very costly). The three examples below are by far the easiest and least expensive to establish or even re-establish credit.

How to establish a credit history

1. Establish a savings account through a credit union. 

2. Deposit $100 into your new savings account.

3. After the transaction, find a loan officer and ask for a $100 secured loan against your savings account.

IMPORTANT: Inform your loan officer that you want the loan payments to stretch for at least 1 year, and reported to the credit bureaus. If the loan goes unreported to the bureaus, you will not build any credit history.

WARNING: Repayment plan of the small loan may vary depending on credit union policy.

4. When the loan officer hands you a check for $100, deposit it into your savings account.

5. One year later. The loan is paid-off. You have established or re-established credit. You now have $200 plus interest in your savings account.

Secured Credit Cards: Secured credit cards help build or re-establish credit; yet can pay for goods and services much like any credit card. However, a secured card requires a deposit that may range from a few hundred or thousand dollars. Usually, a bank will pay interest on your deposit, but you may have to pay application and processing fees, sometimes totaling hundreds of dollars.

Before applying, ask what the total fees are, and whether they will be refundable if denied credit card. Typically, a secured card has a higher interest rate than an unsecured card.

NOTE: If you are a credit union member, inquire about a secured card there. Almost half of all credit unions offer secured cards to their members. Some credit unions offer lower interest rates and waive annual fees.

For more information visit: 
www.bankrate.com/brm/news/cc/19990823.asp

Establish your own credit history: Approximately 100 million Americans have little or no credit history with the "big three" credit bureaus. While millions of these consumers earn steady incomes, and meet regular payment obligations, there has been no easy way for mainstream lenders to evaluate them as potential borrowers…until now.

PRBC (Payment Reporting Builds Credit) is a national credit bureau that captures consumers' history of paying rent, utility, and other recurring bills not reported to traditional bureaus. They enable business partners to help their consumers and small business customers to build a credit file automatically as they pay their bills, or by verifying self-reported payments they have made in the past. Their service bridges the gap between consumers seeking credit and lenders seeking to qualify them. 

Patented Innovation: PRBC has been qualified as a "Community Development Service" for Financial Institutions, by the Federal Reserve Board, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, and by the State of New York Banking Department. The FHA (see http://prbc.com/popup/fha-letter.php) and Sallie Mae (see http://prbc.com/popup/fannie-quote.php) accept PRBC reports.

To learn more, visit:
http://prbc.com or call 877.772.2123.

To learn more about establishing credit, visit: 
www.frbsf.org/publications/consumer/credit.html#establish 
www.bankrate.com/brm/news/debt/20021108a.asp

(For more strategies on how to stretch, save and spend your paycheck see Jeff Burch's Money Book.)

Trans World Assurance Blog

Tags: Trans World Assurance, credit history, Money Book, Jeff Burch, establish credit, re-establish credit, military