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How Debt and Bad Credit Affect Security Clearances

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For those pursuing a life in the United States military – Army, Navy or Air Force – gaining and keeping a security clearance often is vital to acquiring increased responsibility, advancing in rank, earning higher pay, and, indeed, staying in uniform, period.

What’s the most common reason applicants for a security clearance are denied? Botched finances, the same one that causes those with clearances to lose them.

The reason is self-evident: A solider in deep debt is considered more open to bribes or accepting money in exchange for revealing secrets.

Is Bad Credit a Disqualifier?

Bad credit always has worried guardians of the security clearance gate … but not so much that they were vigilant about staying on top of the sinking financial status of clearance-worthy service members. Under the Office of Personnel Management, credit checks of clearance holders happened every five to 10 years.

Even so, financial considerations accounted for roughly 75% of the more than 2,000 cases the Department of Defense heard January through November 2017. That seems unlikely to change.

Spurred by lapses that precipitated a massacre at Washington’s Navy Shipyard in 2013 (investigators never reviewed the shooter’s mental health concerns and an earlier arrest) and failed to address the reckless unreliability of leakers Edward Snowden and Army Pvt. Chelsea Manning, in June 2018, the White House announced it was reassigning administration of background checks to the Department of Defense.

The Pentagon was directed to be far more aggressive, including instructions to “ ‘continuously’ monitor the financial status of service members with security clearances,” reported the Consumer Financial Protection Bureau in a release. “This means that a past-due bill or an error on your credit report could jeopardize your clearance status.”

National Security Adjudicative Guidelines, last updated in July 2017, are clear about the link between security clearances and well-managed finances:

“Failure 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 or sensitive information,” the guidelines say.

Barely more than a month into the new program, 58 workers had their security clearances revoked as part of the Pentagon’s always-on monitoring system.

Still, it’s financial irresponsibility — that is, an unwillingness to address debt trouble — that’s a bigger deal than actual bad credit. Context matters. Are your problems largely out of your control, such as a divorce, job loss, health emergency, or business failure? You may be in luck.

If, on the other hand, your financial troubles are an extension of personal foibles, such as gambling or alcohol addiction, or illegal activity, you can kiss that security clearance goodbye.

If your money troubles simply got out of hand through bad breaks or honest mistakes, investigators also will examine what you’re doing (or not doing) to right your financial ship. Are you working to pay down your debts? Have you established a budget and added to your income streams? Have you connected with a nonprofit debt counseling service? Such efforts will accrue to your favor.

It’s also a good idea for anyone with a security clearance, or wanting one, to keep regular track of their credit reports, being alert to errors or fraudulent activity. Be ready to defend yourself against bad information or nefarious actors.

Does Bankruptcy Impact Security Clearance?

As with bad credit and problematic debt, the answer about bankruptcy’s impact on security clearances is a perfectly murky “maybe.”

A history of financial irresponsibility will be tightly scrutinized in the evaluation process. Accordingly, whether a bankruptcy would affect your security clearance prospects depends largely on the circumstances that prompted you to file.

Whether you have a security clearance, or are seeking one, investigators will scrutinize your situation. If you’re filing bankruptcy to discharge debts (or get them under control) that mounted for reasons beyond your control — you or a family member lost a job; a medical emergency cut into the household income; a business deal full of promise went bad — investigators may recommend leniency: You chose a legal, responsible (if distasteful) method to deal with a financial crisis.

In fact, bankruptcy for legitimate causes shows you are not only taking a positive step toward resolving your financial troubles, but people who are debt-free are less inclined to compromise themselves with a bribe or some other illegal act, making them a superior candidate for achieving or maintaining a security clearance.

However, your security clearance will be jeopardized if your bankruptcy is tightly linked to ill-advised behavior: reckless gambling, a drug habit, or wanton overspending, for instance.

How Much Debt Is too Much for a Security Clearance?

While it is generally conceded that excessive debt is a cause for denying security clearances, no branch of the military has a set amount of debt that will result in being denied.

In fact, the term used for potentially disqualifying a candidate for a security clearance is “excessive indebtedness” which is open for wide interpretation based on a soldier’s income and assets, which vary widely.

A better gauge might be the individual’s debt-to-income ratio, which is measured by dividing your total monthly debt by your monthly income. For example, if you owe $2,000 a month and have income of $4,000, your DTI would be 50% (2,000 ÷ 4000 = .50).

That is considered an excessive amount of debt, but not a disqualifying amount unless the debt has been delinquent for some time.

What About Taxes and Security Clearances?

Whether you owe taxes or simply have failed to file an income tax return (even if you’re due a refund), IRS problems can cost you your security clearance.

Again, it comes down to a matter of trust. A security clearance is a precious jewel granted by the federal government, and you have to care for it every day — no sloppy missteps. If you cannot be counted on to comply in a timely matter with every citizen’s obligation to file on time, what’s to say you won’t abuse security rules and obligations that demand similar diligence?

This does not mean you’re in trouble if you typically request an automatic extension to file, or if you don’t file late routinely. Habitual scofflaws will have problems with the government, but occasional, minor missed deadlines — especially backed up by plausible reasons — may get a pass.

What Is Security Clearance Form 86?

If you want, or have, a job that requires you to know and share secret government information, you require a security clearance. Getting, or keeping, that clearance is a complicated, painstaking process, one that involves a polygraph (lie-detector) test, a special background investigation, and criminal and financial background inspections.

To begin, you have to be sponsored by an approved source. Individuals cannot simply volunteer themselves for security clearances.

The Standard Form 86, Questionnaire for National Security Positions, is the form used by military personnel, government contractors, and government employees to apply for some level of security clearance: confidential, secret, top secret.

SF-86 is a combination grizzly bear and marathon. It’s harrowing, lengthy and relentless, and it demands utter honesty and completeness from the applicant. You cannot fudge, cheat, lie, or even lie by omission and expect to earn that coveted, career-enhancing clearance.

Most of Clearance Form 86 deals with common questions about your background and experience, but there are seven pages dealing with your financial history.

Form 86 is used to do background investigations. Providing information is voluntary. However, if you do not provide requested information, the form states that it will adversely affect your eligibility for a national security position and eligibility for access to classified information.

Therefore, leave no gaps. Err on the side of elaboration. When in doubt, provide an explanation.

Avoid the most common mistakes, because, at minimum, getting them straightened out can delay your approval. We are not making up this list of common errors:
  • Failure to properly enter your full name
  • Entering your date of birth incorrectly
  • Messing up your place of birth
  • Having an active foreign passport
  • Lying about or omitting information about illegal drug activity
  • Failing to report noncriminal court actions (and the outcome)
  • Failing to properly address financial trouble.

In short, take your medicine. Your application, for which SF-86 is integral, is a test of honesty and integrity. If you’re willing to omit or mischaracterize events in your past, an investigator may be forced to conclude you do not measure up as someone who would be trustworthy with vital government information.

Guideline F: Financial Factors That Cause Concern

The Department of Defense examines a full range of human characteristics before it is satisfied that someone is worthy of gaining, or keeping, security clearance. Allegiance to the United States, foreign influence, drug and alcohol use, personal conduct, sexual behavior, even mental and emotional stability.

While many of these qualities are difficult to pinpoint with scientific accuracy, how a candidate for a security clearance manages money is readily apparent, which helps explain why financial mismanagement is the most common area of disqualification. Below, from the U.S. Code of Regulations, Title 32 — National Defense, Part 147.8 (Financial considerations) are some of the financial factors that can hoist red flags on an application to achieve, or maintain, a security clearance:

(a) The concern. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. Unexplained affluence is often linked to proceeds from financially profitable criminal acts.

(b) Conditions that could raise a security concern and may be disqualifying include: (1) A history of not meeting financial obligations;

(2) 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;

(3) Inability or unwillingness to satisfy debts;

(4) Unexplained affluence;

(5) Financial problems that are linked to gambling, drug abuse, alcoholism, or other issues of security concern.

While the Pentagon is right to worry about irregular or apparently haphazard financial histories, its investigators are also charged with burrowing deeper, to learn about mitigating circumstances (if any).

Perhaps the financial trouble was several years earlier or was an isolated incident. Perhaps the problems were beyond the person’s control — loss of a job, a medical emergency, death, divorce, or some other major life event. Perhaps the person is receiving, or has received, effective counseling, producing clear signs the problem is resolved or under control.

Perhaps the affluence is from a legal source: inheritance, an award in a civil lawsuit, even lottery winnings.

Prepping for Your Security Clearance Interview

Once you have completed and submitted SF-86, next up is a security-clearance interview. If your answers on SF-86 are accurate, complete and free of red flags, congratulations: The personal interview should not be a problem.

William Henderson, who spent 35 years in the security and counterintelligence business before founding the Federal Clearance Assistance Service to advise people about preparing for a security clearance interview, recommends having a copy of your completed SF-86 at hand. Most questions are follow-ups to the answers you’ve already written on that form.

Bring documentation, especially for any ticklish situations involving credit cards or bank loans. You may have to elaborate — in detail — the circumstances surrounding some of your answers, particularly regarding choices such as defaulting on student loans, or an auto loan, or consistent late payments for rent or utilities. Investigators will want to know why you made the decisions you made, any pressure or coercion involved, whether your behavior has changed on that subject, and the likelihood of it occurring again.

You may be asked to sign a release for information on the financial matters. Though the whole process is voluntary, refusing to sign the release could result in denial of security clearance.

In short, be ready to explain your history at length and at a granular level. After all, you’re asking the government to entrust you with the safety of the nation. The least you can do is be convincing that your life is in order.

Practical Solutions for Keeping Debt Under Control

Financial management is available on most, if not all military installations, but military members can also seek debt management or financial advice on their own.

Checking your credit score is one of many suggestions for dealing with debt so it won’t affect your ability to get a security clearance.

Some other practical suggestions for when debt is a problem include the following:
  • Seeking credit counseling from a non-profit agency, especially if the company can negotiate lower interest rates and better payment terms
  • Documenting all efforts to manage the problem, including names, dates and whatever other particulars were involved
  • Preparing a budget that is a realistic review of your finances and consistently reduces your debt
  • Making at least minimum payments to your creditors every month
  • Immediately disputing a mistake on credit report
  • Notifying security officers or your immediate commander that you’re having financial problems and are seeking assistance to deal with them

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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