Page 1

Consumer Credit Guide for Members of the Armed Forces

Consumer Credit Overview WHAT IS CONSUMER CREDIT? Consumer credit is debt you incur for purchasing goods or services like clothes and groceries or bigger expenses like car repairs or medical bills. These goods and services include items that are consumed and whose value depreciates quickly. Consumer credit does not include debt incurred to purchase real estate or margin on investment accounts. For example, a mortgage to purchase your home is not consumer credit. However, a loan to buy furniture for your home is. This type of credit is issued by lenders through credit cards, lines of credit, installment loans, title loans, refundanticipation loans, pawn loans and other products.


Factors Affecting Your Credit and What it May Cost You YOUR LOAN ÌÌ

How much are you borrowing, and for how long? You may need to borrow a

large sum of money to buy a house or car. Paying off a long-term loan, on time, can establish a positive credit history. Paying every bill on time tells lenders you’re more likely to pay back loans and can keep your credit history in positive territory. ÌÌ

Is your debt secured or unsecured? Debt is grouped into two categories —

secured and unsecured — and how much of each type you hold may affect your credit score. Secured debt is generally tied to an asset such as a home for a mortgage. The loan is “secured” by the home, which the lender can take possession of if the debt is not repaid. Secured loans are less risky, and, therefore, tend to have lower interest rates. Unsecured debts are loans not connected to an asset that the lender can seize for repayment. These loans — which tend to be higher risk and higher cost — include credit card and medical debt. YOUR CREDIT WORTHINESS ÌÌ Credit score. Credit scores are based on information in your credit report so make sure the details in your report are accurate. As Service members and military spouses, you can request your free credit score from your local Personal Financial Manager (PFM) at your Family Center. ÌÌ

Risk measures. Factors that may affect your credit worthiness include

carrying high balances on your credit cards and making late payments. Applying for too much credit may also cause your score to take a tumble. Seek only the credit you need. YOUR CURRENT FINANCIAL SITUATION Debt ratios. Keeping your monthly debt-to-income ratio at no more than 43 percent allows you to still make payments if something happens. Calculate this percentage by dividing your monthly debt payment by your gross monthly income. LEARN MORE For more information. Your credit history can impact many aspects of your life.

Building and keeping good credit may help you maintain your security clearance, may make lenders more likely to offer you loans with better interest rates and may make you more appealing to your next landlord. Talk to your PFM about improving your credit score and your debt-to-income ratio. Receive information on credit, including tools for building good credit, by searching for “credit reports and scores” at

Special Consumer Credit Protections for Service Members and Their Families Military Lending Act (MLA) What does the MLA do? ÌÌ


The law protects Service members and their families by limiting the cost of credit offered to 36 percent Military Annual Percentage Rate (MAPR). Your MAPR includes not only interest, but also application fees and costs of additional credit products such as credit insurance.

What are lender obligations under the MLA? ÌÌ


Generally, lenders must disclose in writing and orally the MAPR that is applicable to the extension of credit and a clear description of the payment obligation, among other disclosures. Generally, lenders may not require you, or other covered borrowers, to waive your rights as borrowers to legal recourse or to submit to arbitration. Lenders also cannot impose other severe legal notice provisions in cases of disputes, demand unreasonable notice or require payment by military allotment as a repayment condition.

Who does the MLA protect? ÌÌ ÌÌ


Active-duty Service members Military family members enrolled in the Defense Enrollment Eligibility Reporting System, known as DEERS Members of the National Guard and Reserves on active duty for 30 days or longer

What is covered under the MLA? The MLA’s protections extend to payday loans, vehicle-title loans, refundanticipation loans, installment loans, unsecured open-end lines of credit and pawn loans. The MLA also covers credit cards. What is not covered? Exempt from the MLA are loans to purchase or refinance a home, loans to purchase a vehicle, and purchases where the loans are secured by the property being purchased.

Where can I get help and learn more? If you suspect your loan or credit product violates the MLA, submit a complaint with the Consumer Financial Protection Bureau (CFPB) at https://www. or talk with your local military legal assistance office (locate one at Learn more by going to the CFPB website at and searching for “Military Lending Act.”

Servicemembers Civil Relief Act (SCRA) The SCRA eases your financial burden when you’re called to active duty by postponing, suspending or lessening certain debt obligations and actions, such as foreclosures incurred before active duty. A key provision requires creditors to limit your interest on debt — and debt held jointly with your spouse — to 6 percent, after they receive written notice, a copy of your military orders and any other notice extending your military service. You have 180 days after your release from active service to alert creditors that you were on active duty; the interest rate reduction applies from the day you entered active-duty status until the day you’re no longer on active duty. Visit the SCRA website at to obtain your SCRA Certificate, which verifies Title 10 active-duty status. The SCRA offers other protections in areas such as lease terminations, evictions and default judgments. To learn more about the SCRA, go to servicemembers-civil-relief-act-scra.

Other protections ÌÌ


Truth-in-Lending Act (TILA). The TILA requires lenders to disclose certain credit terms before borrowing. Learn more at this Consumer Financial Protection Bureau (CFPB) webpage: Fair Credit Reporting Act. This law promotes accuracy, fairness and

privacy in consumer reporting. Learn more by reading this Federal Trade Commission paper at Under the law, you can ask for a free copy of your credit report every 12 months from each nationwide credit bureau or specialty credit reporting agency. Do so at the annual credit report website at ÌÌ

Fair Debt Collection Practices Act. This law protects consumers from abusive debt-collection practices. Learn more at this CFPB webpage, https://

Consumer Credit Resources DEPARTMENT OF DEFENSE FINANCIAL COUNSELING RESOURCES Contact your installation’s Family Center to make an appointment with an accredited Personal Financial Manager (PFM) or Personal Financial Counselor (PFC) at or for no-cost, personal support. OTHER RESOURCES Federal Trade Commission Consumer Financial Protection Bureau Office of the Comptroller of the Currency National Credit Union Administration Free annual credit report FINANCIAL ASSISTANCE Your Service military relief society may be able to serve as a source of support for emergency financial assistance or education. Speak with your PFM or PFC for more information. Army Emergency Relief Navy-Marine Corps Relief Society Air Force Aid Society Coast Guard Mutual Assistance

About the Office of Financial Readiness The Office of Financial Readiness works with the military departments, other federal departments and agencies, and nonfederal entities to sustain and advance the financial readiness of service members and families in support of total mission readiness. The mention of any nonfederal entities in this publication is not an endorsement, nor is any endorsement implied. For more information, visit the Office of Financial Readiness website: Follow DoDFINRED on social media:

Visit Military OneSource’s website at for tools, training and resources to help you and your family become financially secure and remain mission ready.

Profile for DoDFINRED

Consumer Credit Guide for Members of the Armed Forces  

The Consumer Credit Guide for Members of the Armed Forces is your go-to source for special protections for Service members and families, res...

Consumer Credit Guide for Members of the Armed Forces  

The Consumer Credit Guide for Members of the Armed Forces is your go-to source for special protections for Service members and families, res...

Profile for dodfinred