An important part of financial education is helping adults who choose to carry a credit card to use it in a beneficial way. If we were to play a financial word association game and the topic was credit cards, what would you say? Possibly, “bad, debt, interest, or fees.” Credit cards will always carry a negative connotation as long as “48% of Americans continue to carry a balance from month to month.”
Recognizing the impact finances had on military readiness, there were two important federal laws that were passed to financially and legally protect military families. Let’s discuss those protections, as well as the additional benefits extended by card issuers that unlock tons of travel benefits.
Two Financial Laws Service Members Should Know
The first law is the Servicemember Civil Relief Act (SCRA) which protects against default judgements, foreclosure, repossession & reduces interest rates on preservice loans. The most well-known protection is allowing early termination of leases when you receive military orders. You can learn all about the SCRA on Consumerfinancial.gov. Or go to your duty station’s legal department to learn more about your legal benefits.
The second law is the Military Lending Act, or the MLA. The MLA caps interest rates to 36%, limits extraneous charges, and prohibits prepayment penalties. These protections are mostly aimed against predatory lenders. This applies to consumer loans obtained after the start of active duty service, including those for military spouses and certain dependents. National Guard and Reserve members qualify for these protections when they are serving on Active Duty for more than 30 days. You can always check your MLA eligibility here.
Credit Card Tips and Benefits for Service Members
When using any credit card, you want to do so responsibly. Before you open a card, it’s wise to have a budget that you feel confident following. You want to use a credit card just like you would a debit card: pay off the balance in full, on time, every single month. Setting up automatic payments can help assure that happens no matter how crazy life gets. Often, you can link your credit card to your bank dashboard to keep all your finances together. When you pay off your balance in full, you’ll avoid paying interest and late fees. You’ll also boost your credit score.
How do credit cards impact your credit score?
Credit cards can impact your credit score in several ways.
- When you open a card, there is an inquiry into your credit. This will cause a temporary decrease in your credit score.
- If you have a late payment or miss a payment, that will have a negative influence on your score. That’s why it’s so important to pay each bill on time.
- Credit utilization—the amount of available credit—also affects your credit score. Your credit limit will be assigned when you receive your card. As much as possible, you want to use under 30% of your available credit to have a great credit score.
- The length of time a credit account is open can be a positive influence on your credit. If you have long-standing accounts with cards you no longer use, you may want to leave the account open for your credit report.
In summary, you can build good credit or improve your credit score by paying on time, using less than your full available credit, and maintaining accounts for a long period of time. Doing the opposite will lower your credit score.
Members of The Edge can check their credit score for free, and get a free credit report to understand it. That’s just one of the many free financial tools and resources available to members! Membership is free for service members, Veterans, and spouses, so join The Edge today!
Which credit card is best for a military family?
Every credit card offers different benefits, so you want to choose one that makes the most sense with your budget. Focus on these factors when choosing a card:
- Cash Back
- Points
- Perks and Benefits
Many cards offer cash back on specific categories of purchases or on your total spending. Some allow you to earn interest on the cash back amount in a savings account, while others let you apply the cash earned to future bills. Starting with a general idea of your goals will narrow down your credit card search and save you time. Flexible cards are my favorite for beginning and adapt well if your goals change.
Credit card points can be earned from a welcome bonus and from your spending. A welcome bonus is when the card issuer says, “I’ll give your 80,000 points if you spend $6,000 in six months.” Make sure that you already planned to spend at least $1,000 a month for this card to be a good fit. Focusing on point multipliers will maximize your long-term earning potential. Look at your budget for your top three spending categories, then find a card that offers a multiplier for those categories. For example, the blue card might offer 1 point per dollar spent on groceries and the red could give you 4 points per dollar spent on gas. Knowing your household budget and your primary spending categories will make this decision easier.
Credit card perks are important to include in your decision making. There are a wide variety of card benefits, and some are easier to use than others. If you’re interested in travel, there are cards that offer airport lounge access, flight credits, free seat upgrades, buy-one-get-one flights, free hotel nights and more. Don’t overlook card perks on everyday expenses like food delivery credits, entertainment credits, or free shipping for online shopping. These benefits can free up space in your monthly budget.
When you’re looking for a credit card, the options are truly endless, but don’t get stuck in analysis paralysis! Get started as soon as possible so you can begin building strong credit. If you select a card that waives fees under the MLA, you will be sent a letter confirming your MLA (Military Lending Act) status and your waived annual fee. The only step left is to enjoy your perks and points.
Author: Chelsey is a military spouse who loves traveling with her family for less. She shares resources and benefits on Instagram to help other families do the same.
