Financial problems are the most commonly encountered potentially disqualifying conditions for a security clearance. There are all sorts of reasons why people have financial problems: unemployment, business downturn, unexpected medical expenses, divorce, separation, death of a family member, or simply becoming overextended on credit. Financial problems sometimes spiral out of control, resulting in collection actions, garnishments, repossessions, foreclosures, and bankruptcy. They can become a big issue for someone with a security clearance and in many cases the financial problems must be reported to their security office. “Financial Considerations” for security clearances are fully explained at Guideline F of the “Adjudicative Guidelines for Determining Eligibility for Access to Classified Information.” If you have delinquent debts, you should review your financial situation and begin taking corrective action as soon as possible.
You Can Help Yourself!
- Obtain a credit report from each of the three credit bureaus: Equifax, Experian and Transunion. You can do this once a year for free at annualcreditreport.com.
- Review each report for obvious errors and ensure that all accounts listed on the reports belong to you. If you don’t recognize an account, contact the creditor and request more information about that account.
- If you determine that an account is not yours, you should file a police report for identity theft that specifies each suspect account and keep a copy of the police report. You should also notify the creditor in writing to inform them that you are disputing the account and that it does not belong to you.
- You should notify each credit reporting agency in writing and dispute all suspicious accounts. You may also consider putting a note on your credit reports indicating specific identity-theft accounts and that you are formally disputing those accounts.
- Pay at least the minimum due each month on all of your legitimate debts and put any extra money you can toward debts with the highest interest rates. You should review the interest rates on your delinquent debts and pay off those debts with the highest interest rates first. Most people want to pay off their small debts first and if a small debt has a high interest rate, that’s fine. However, you should be aware that if the interest rate on a small delinquent debt is less than the interest rate of a larger debt, you will ultimately pay more interest over time.
- Don’t stop paying on one debt in order to save enough money to pay off another. This only results in a new collection account that can further hurt your credit and put doubt in a security clearance adjudicator’s mind that you are truly trying to resolve your debts. Besides, people often find other uses for the money that was supposed to go toward a delinquent debt and wind up even further in debt.
- Don’t continue to spend on a credit card that you are trying to pay off. If you contact the lender, they will often work with you to help you pay off the delinquent debt by setting up a payment plan with smaller payments or by settling for a smaller amount than is actually owed. Make sure you continue to make the payments on time and as agreed on the plan.
Disputing Older Delinquent Debts
If you have delinquent debts that are almost seven years old, you can try to dispute them with the creditor to see if the creditor will remove them from your credit report. If you begin making payments on these older delinquent debts, they will not be removed from your credit report when they reach the seven year mark. Any payments will cause the clock to be reset and the seven year period will start all over again.
Mistakes occur on credit reports. Always try to get inaccurate information on your credit reports corrected, particularly information about late payments, charge-offs, collections, etc. For example, if you find a creditor listing an account as “settled” when you have been making payments “as agreed,” you should dispute that account with the creditor. If an account is listed as a “paid charge-off” and you were not delinquent, that account should also be disputed. If you were involved in a bankruptcy, be sure and look for accounts that are still listed as unpaid on your credit report but were included in your bankruptcy. Entries regarding delinquent debts in excess of seven years (or 10 years for bankruptcies) should automatically be removed from your credit report. If they have not been removed, you should dispute the entries.
Credit Repair Versus Credit Counseling
Credit-repair agencies pay themselves first from the money you give them. Once their fees are paid, they begin setting aside the money you give them toward a future account settlement with one or more of your creditors. None of your creditors are being paid while the credit repair agency collects their fees or settlement monies and your debts continue to grow larger. Depending on the credit repair agency’s fees, it may be 90 days (or more) before any payments are made to a creditor. Settlements offered by the agency to the creditor are not always accepted, leaving the debt to that creditor to grow even larger. Before you sign with them, you should request detailed information from the credit repair agency about how they intend to pay off your delinquent debts. Make sure you are satisfied with their cancellation policy should you change your mind about their program.
If you need assistance correcting your credit problems, instead of a credit repair agency, consider a consumer credit counseling service—preferably one that is a member of the National Foundation for Credit Counseling. Credit counseling services charge a small fee for helping you set up a household budget, determining how much you can pay each month toward your debts, and attempting to negotiate lower interest rates, repayment plans, and/or settlements with your creditors. You make a fixed monthly payment to the credit counseling service, they deduct their service fee and distribute the rest to your creditors in accordance with the repayment plans set up for each creditor. A reputable consumer credit counseling service will also advise you to file for bankruptcy, if your situation is bad enough to warrant bankruptcy.
Short Sales and Foreclosures
If you are involved in a short sale or foreclosure, you will need to keep a copy of all correspondence between you and the mortgagee. If after the short sale or foreclosure, you owe no additional money toward the debt, obtain documentation from the mortgagee stating that no deficiency balance exists. If a deficiency balance exists, don’t ignore it. Contact the mortgagee and make arrangements to resolve it. If you had VA, FHA, or Private Mortgage Insurance (PMI), in most cases the insurance will satisfy any deficiency balance.
While these simple steps won’t bring your credit back into order immediately, they can help you mitigate a financial issue for a security clearance. You must remember to save payment receipts, check stubs and other supporting evidence that a delinquent debt is being paid or has been paid off. The mitigating evidence you supply for delinquent debts will be considered in a security clearance adjudication. If you don’t provide adequate evidence, the adjudicator may not have enough information to mitigate a debt. There are no “quick fixes” to credit problems, and even a bankruptcy will take time to get through. If you follow some of these recommendations now, you may be able to mitigate financial issues before they become a major issue that results in the denial or revocation of a security clearance.
Martha Donley is a retired DOD security clearance adjudicator and a personnel security consultant.
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