How Debt and Bad Credit Affect Security Clearances

For those pursuing a life in the United States military — Army, Navy (including the Marine Corps), Air Force, Coast Guard or Space Force — gaining and keeping a security clearance can be 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: Military personnel in deep debt are considered more open to bribes or accepting money in exchange for revealing secrets.

Why Does Credit and Debt Affect Security Clearances?

Operatives trading in government secrets look for levers that can spring locks to classified information. Chief among those levers: bad credit and/or high debt. Individuals whose financial lives are compromised are more susceptible to criminal temptation.

Personal finance concerns apply across the government spectrum, reaching even the highest appointed offices. In July 2023, the White House scuttled its nomination of Kemba Walden as the permanent national cyber director, citing the high debt load she and her husband carry — even though Walden’s work as the acting director had been praised across Capitol Hill.

Similarly, says BizReport editor Young Pham, “The link between personal finances and military security clearances is undeniable, as financial stability is considered a critical component of an individual’s overall trustworthiness and reliability for holding a security clearance.”

Is Bad Credit a Disqualifier for Military Security Clearances?

Since 2018, under the Defense Counterintelligence and Security Agency, all federal personnel with security clearances have been subject to continuous vetting under Trusted Workforce 2.0, supported by the National Background Investigation Services, a “secure IT system that … coordinate[s] and connect[s] the systems, interfaces and databases that support continuous vetting.”

Credit and financial activity are among the seven categories identified for perpetual surveillance, alongside criminal activity, foreign travel, and terrorism.

National Security Adjudicative Guidelines make clear 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.

“Accumulating excessive debt or having a history of financial mismanagement can raise concerns about an individual’s judgment, self-control, and reliability,” Pham says. “Financial problems may affect an individual’s ability to maintain the security of classified information, as it could lead to risky behavior or security breaches.”

Still, it’s financial irresponsibility — that is, an unwillingness to address debt trouble — that’s a more serious concern. Context matters. Are your problems largely out of your control (divorce, job loss, health emergency, or business failure)? You may be in luck.

If, instead, your financial woes are an extension of personal foibles, such as gambling or alcohol addiction, or illegal activity, you can kiss that security clearance goodbye.

There’s more. If your money trouble occurred through bad breaks or honest mistakes, investigators will examine what you’re doing (or not doing) to right your financial ship. Are you working to pay down your debts? Have you created 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, and be alert to errors or fraudulent activity. Be ready to defend yourself against bad information or nefarious actors.

How Much Debt Is too Much for a Military Security Clearance?

While it is generally conceded that excessive debt is a cause for denying security clearances, no military branch has a set amount 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.

A better gauge might be the individual’s debt-to-income ratio, measured by dividing total monthly debt by 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.

Does Bankruptcy Impact Military Security Clearance?

As with bad credit and problematic debt, the answer about bankruptcy’s impact on security clearances is an absolutely crystalline “maybe.”

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

If you’re filing bankruptcy to discharge debts 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 method to deal with a financial crisis.

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

How Do Taxes Impact 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 becomes a matter of trust. A security clearance is a precious jewel granted by the federal government, requiring daily care — 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 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.

The Security Clearance Process

A security clearance is required for any job that involves knowing, protecting, and appropriately sharing secret government information. Getting and keeping that clearance is a complicated, painstaking process, involving a polygraph (lie-detector) test, a special background investigation, and criminal and financial background inspections.

“Policymakers consider it crucial to uphold national security by ensuring that individuals entrusted with classified information have sound financial backgrounds,” Pham says. “Consequently, a limited or denied security clearance can indeed have significant implications for one’s military career.”

As a result, the process is designed to be arduous. To begin, you have to be sponsored by an approved source. Individuals cannot simply volunteer themselves for security clearances.

Once that hurdle is cleared, your next challenge is Security Clearance Form 86.

What Is Security Clearance Form 86?

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

SF-86 is, by design, a 15-round cage match with a grizzly bear. Harrowing, lengthy and relentless, the form demands utter honesty and completeness. Applicants cannot fudge, finesse, cheat, lie, or even lie by omission and expect to earn that coveted, career-enhancing clearance.

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

SF-86 includes a Catch-22: The information you provide is voluntary; however, withholding requested information will adversely affect 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.

Common Mistakes to Avoid on the Form 86:

• Failure to properly enter your full name.
• Entering your date of birth incorrectly.
• Inaccurately reporting 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.

Your application is a test of honesty and integrity. If you’re willing to omit or mischaracterize events in your past on a form, an investigator may conclude you cannot be trusted with vital government information.

Guideline F: Financial Factors That Cause Concern

The Department of Defense examines a full range of characteristics before it is satisfied that someone is security-clearance worthy. Categories examined include 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 security clearance manages money is readily apparent, which helps explain why financial mismanagement is the most common area of disqualification.

Some of the financial factors (from U.S. Code of Regulations, Title 32 — National Defense, Part 147.8 [Financial Considerations]) that hoist red flags:

(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 correctly worries about irregular or haphazard financial histories, its investigators also are charged with uncovering mitigating circumstances (if any).

Was the financial trouble isolated and/or well in the past? Were the problems outside the applicant’s control: job loss, medical emergency, divorce, death, some other major life event? Has the candidate received effective counseling, signaling the problem is resolved or under control?

Is the candidate’s affluence from a legal source: inheritance, an award in a civil lawsuit, even lottery winnings?

Prepping for Your Security Clearance Interview

Once you have 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 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. For your interview, he says, have a copy of your completed SF-86 at hand. Most questions are follow-ups to the answers you’ve written on that form.

Bring documentation, especially for any ticklish situations involving credit cards or bank loans. You may have to elaborate on 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, and the likelihood of it occurring again.

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

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

Can You Get Discharged for Failing to Pay Debts?

It’s not just your security clearance that can be throttled by excessive debt and the trouble it triggers. Entire military careers have been derailed by financial strife.

Besides security clearances, the other key issue tied to unruly debt involves military readiness — that is, the ability to perform your duty without restrictions or distractions, including the ability deploy.

Military personnel compromised because of debt worries cannot be counted on to carry out mission-critical duties. Failure to perform can lead to a variety of punishments, including bad-conduct discharge.

Practical Solutions for Keeping Debt Under Control

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

Routinely checking your credit score is a key factor for making certain debt doesn’t affect your security clearance.

Some other practical suggestions for when debt is a problem include the following:

• Seeking credit counseling from a nonprofit agency, especially if the company can negotiate lower interest rates and better payment terms on your debt.
• Researching methods and options for military and veteran debt consolidation.
• 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.