Credit guide for military members and their families

US laws gives debt, rate relief; cards aimed at service members add extra perks

Kelly Dilworth
Personal finance writer
Specializing in new trends in credit

Credit guide for military servicemembers and their families

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If you or your spouse is a member of the military, you could save hundreds of dollars a year on credit card interest payments or fees – or be refunded thousands of dollars in old payments – just by contacting your card company and letting them know you’re serving your country. 

Federal laws offer key protections, and many credit card issuers go beyond those baselines and offer a wide range of money-saving benefits that are exclusively available to military families. But the breaks do not come automatically; the onus is on service members to apply. And because these perks aren’t widely advertised, many service members don’t know about the benefits available.

“Our focus lies elsewhere,” says Richard Kerr, a naval officer who frequently writes about military finance. “Worrying about the ancillary benefits of a credit card versus an upcoming deployment is pretty low on the list.”

As a result, service members could be forfeiting hundreds, or potentially even thousands, of dollars in credit card interest and fees simply because they aren’t taking full advantage of the offers and benefits available to military personnel.

Federal laws

Two federal laws give valuable credit protections to military members:

  • The Servicemembers Civil Relief Act (SCRA) requires lenders to cap interest rate charges on already-existing loans that military service members took out before they started active duty at 6 percent. Lenders must also waive fees, such as annual fees or late fees, if those charges exceed the 6 percent cap.

    “This is a huge benefit that so many military families just don’t know about,” says Christine Maxwell, an Army wife and author of the military finance blog Her Money Moves. “And it can literally save them tens of thousands of dollars over a military career.”

    “I wish I’d known about it when I was a new lieutenant,” says the anonymous blogger behind the Military Dollar personal finance blog. “I hate to think about how much extra interest I must have paid because I never applied for SCRA benefits!”

    Depending on the card issuer, military service members also may have access to a bevy of exclusive perks and benefits, such as annual fee waivers on super premium cards – which typically charge several hundred dollars a year – rebates on old interest payments, dramatically reduced interest rates for family members, extended SCRA benefits and more.

  • The Military Lending Act imposes in interest rate cap of 36 percent on new loans taken out by active-duty service members and their dependents.

    While the SCRA is decades old, with its roots extending to legislation passed during World War I, the Military Lending Act is relatively new. It was initially passed in 2006, and amended and expanded in 2013, with the additional rules phased in. The MLA’s latest provision, extending the 36 percent cap to credit card interest rates, went into effect in October 2017.

Credit-related federal laws for service members, at a glance

 
Name of act Military Lending Act Servicemembers Civil Relief Act
Who it covers Active-duty military members and their dependents Active-duty military members and their dependents (indirectly)
When coverage starts At time of loan origination Applies to existing debt
What it covers
  • Payday loans
  • Vehicle title loans
  • Refund anticipation loans
  • Deposit advance loans
  • Installment loans
  • Unsecured open-end lines of credit
  • Credit cards (as of Oct. 3, 2017)
  • Outstanding credit card debt
  • Mortgage payments
  • Pending trials
  • Terminations of lease 
  • Collection activity
How it does this The MLA limits interest rates and some fees to 36 percent military annual percentage rate. The SCRA caps interest rate charges, including late fees and other transaction fees, at 6 percent.

Extended benefits

“Many credit card companies offer benefits that go far beyond the requirements of the law,” says Kate Horrell, a military finance coach whose husband is in the military. For example, some card companies will waive annual fees or cut interest rates on new cards. Others will lower rates well below 6 percent or refund interest or fee charges that don’t technically qualify for SCRA protection. Some military service members, for example, have received refunds on credit cards owned solely by their spouses.

"I wish I'd known about it when I was a new lieutenant. I hate to think about how much extra interest I must have paid because I never applied for SCRA benefits!"

“It’s not what the law requires. It’s something that they’re doing as a perk or benefit,” says Horrell. “I know military members who are getting thousands of dollars of interest refunded.”

For example, among the card companies known to offer extended benefits:

  • Capital One caps rates for cards and other eligible loans at 4 percent – 2 points less than what’s required by law, says Capital One spokeswoman Amanda Landers. It also waives all fees associated with a credit card, including expedited processing fees for a replacement card, late payment fees, cash advance fees, balance transfer fees, over-limit fees and more. In addition, Capital One grants SCRA benefits for new cards and extends benefits for up to a year after a cardholder has left active duty service.
  • USAA also caps rates at 4 percent for both pre-existing debt and new charges, says USAA spokesman Matthew Walter. Military families are eligible for the extra low rate when a service member is deployed abroad or when a military family is given a permanent change of station – a move that often happens every couple of years. USAA also gives cardholders up to a year after active duty has ended to request retroactive benefits.
  • American Express waives annual fees on new cards, including cards with high annual fees such as the Gold and Platinum cards. It may also waive other charges. “We encourage our military servicemen and women to contact us directly to hear about the specific benefits and fee waivers we have available to them,” American Express spokeswoman Charlotte Fuller wrote in an email.
  • U.S. Bank also waives fees for service members. “U.S. Bank is proud to serve our service member customers with a variety of credit cards and lending benefits that fall within the Servicemembers Civil Relief Act (SCRA) and Military Lending Act (MLA),” senior vice president Cliff Cook said in an email. “In addition, we do offer additional benefits, such as waiving annual fees and late fees for these customers.”
  • Bank of America offers reduced interest rates on military-themed affinity credit cards and all SCRA-eligible cards for up to six months after a service member leaves active duty, says Bank of America spokeswoman Betty Riess.
  • Discover grants SCRA benefits to military spouses or domestic partners, says Discover spokesman Jeremy Borling, even if the service member isn’t listed on the card. Under the SCRA, lenders are only required to extend benefits to spouses with jointly held cards. It also extends SCRA benefits on new cards. “Many of these additional benefits are aimed at making it easier for service members to access them,” he says.

Retroactive refunds

Card issuers also should refund charges, such as annual fee or interest payments above the 6 percent rate cap, that service members incurred before they applied for benefits. “I had several friends who got annual statement credits for all the years that they’ve been active duty,” says Kerr. 

In addition, some card companies will even refund interest rate or fee charges that service members and their spouses incurred years before entering military life. For example, Bailey Cummins, an Army wife who runs the blog Becoming Bailey, saved thousands of dollars in interest charges on her Discover card after she asked if it would qualify for SCRA relief.

“Discover went beyond what they were required by law,” says Cummins. “At the time that we received the benefit, my husband was not on the card.”

In addition, “I had applied for the card long before we got married, but they approved it for SCRA benefits, which was very generous of them, and I was super grateful.” Discover even refunded interest charges dating back to when Cummins first opened the card – nearly three years before she became a military spouse.

"It's not what the law requires. It's something that they're doing as a perk or benefit. I know military members who are getting thousands of dollars of interest refunded."

“I think they’re doing it as a thank-you to military service members,” says Maxwell.

Lucrative perks

Maxwell recently opened an American Express Platinum card and didn’t have to pay a penny of the $550 annual fee that Platinum cardholders are typically charged because her husband is a military lawyer on active duty.

“It was a brand-new card, so they don’t necessarily have to do that,” she says.

In addition, American Express waived other ancillary charges, such as over-limit and late payment fees. Because it’s so expensive, the Platinum card is not a card she normally would have applied for, says Maxwell. “But it’s free.”

Just by opening the card, she’s already pocketed hundreds of dollars’ worth of benefits for new cardholders, including a $200 airline fee credit, a $100 credit for TSA Precheck or Global Entry, free Uber credits and more.

The Platinum card is one of the most popular cards amongst military finance bloggers, thanks to its lucrative perks and exclusive freebies for Platinum card members.

“They have a huge sign-up bonus that I used to travel to Europe,” says John, an active duty Coast Guard member who runs the blog Military Fire and prefers to remain anonymous.

However, military credit card holders also have access to a wide range of other premium annual fee cards that offer ample bonuses on groceries, gas and travel, provided they have the credit scores to qualify.

Premium cards that have their annual fees waived are especially popular with military bloggers because they provide so many opportunities to rack up rewards on the go.

“I think that is one of the awesome benefits of being in the military,” says Andy Sheep, a naval officer who helps run The Military Frequent Flyer blog. “Travel alone is a benefit in itself, but to get even more rewards on top of that is icing on the cake.”

Some trips require service members to use a government credit card, says Sheep. But others allow cardholders to get around those requirements or use their cards for personal expenses.  

Rules, tips for applying

To get SCRA benefits or related perks, service members must contact the credit card company directly and ask what benefits it offers. Some, such as Capital One and American Express, allow you to apply for benefits online. Others require you to call and send proof of your status, such as military orders.

Ask if the card company offers any benefits that go above and beyond the SCRA, says Doug Nordman, a retired military officer and author of  “The Military Guide to Financial Independence and Retirement.” Not all card companies will be willing to extend more generous benefits, but it doesn’t hurt to ask.

“They might lower interest rates, they might waive annual fees and they might go back in time and lower interest rates or retroactively waive annual fees,” says Nordman. “Every card issuer does it differently.”

Some issuers have also scaled back the benefits they offer military families, so don’t be surprised if a card issuer that was rumored to offer benefits no longer does.

If a company denies your request, “Let it go,” says Cummins. “If they don’t go beyond what the law requires, that’s their choice. We’re not entitled to these things. We’re only entitled to what the law requires of credit card companies.”  

Veterans, military retirees can benefit as well

Active-duty service members aren’t the only military affiliates eligible for special credit card rates and benefits. Veterans and military retirees also have access to some of the lowest credit card interest rates and fees.

Cards specifically targeted to members of the military and their families, such as those from Navy Federal Credit Union, Pentagon Federal Credit Union and USAA, for example, offer some of the lowest rates and fees cardholders can get.

CreditCards.com analyzed 22 cards that require some kind of connection to the military or another qualifying organization to be eligible to apply and found:

  • Low interest rates: Military cards are among the few cards still available that offer genuinely low interest rates on new purchases. For example, the average minimum interest rate on a military card is just 10.65 percent – nearly 6 points less than the national average. These rates are for family members and military cardholders who aren’t currently on active duty and so don’t qualify for SCRA benefits.
  • Low maximum interest rates: The average maximum rate is 20.83 percent, but many cards offer a maximum rate of just 17.99 percent. Meanwhile, some offer rates as low as 6.99 percent.
  • Fewer fees: Military cards also carry fewer fees than the typical credit card. For example, nearly half of the military cards surveyed don’t charge a penalty APR. None charges foreign transaction fees – a big perk for cardholders who live abroad – and seven waive credit card balance transfer fees.
  • Decent rewards: Rewards are decent for cards with such low rates. Among the cards surveyed, six offer 1.5 to 2.5 percent back on every purchase. Two offer 5 percent back – or 5 bonus points – on gas. One offers 5 points back for travel purchases.

“Those are good cards to start out with,” says John of Military Fire. “Those cards usually don’t offer huge sign-up bonuses.” But they typically offer safer terms.

Once you’ve established your credit and proven that you can comfortably manage your balances, which is reflected in higher credit scores, you can then upgrade to a more lucrative high-end card.

Just be sure you continue to pay your bills on time and avoid overcharging, says Maxwell. Your credit score is especially important when you’re a member of the military because a bad score could alter your ability to do your job.

“Credit is very important for service members,” she says. “If you have a top-secret clearance, your credit history affects your clearance.”

The government may decide it can’t trust you if you have problems with your credit. “I think service members often don’t think about how it could affect your career in the long run if you don’t take your credit seriously.”

See related: Military credit cards, Authorized user not covered by service member’s APR protections

https://www.creditcards.com/credit-card-news/military-lending-act-caps-finance-charges-36-percent.php


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Updated: 07-19-2018