Bad Credit Loans for Military Members: Options & Regulations

It is challenging to secure a bad credit military loan, but some military lenders are sensitive to certain challenges posed to a member of the armed forces. Military lenders are not part of the United States government or Department of Veterans Affairs. Instead, these are private lenders who choose to serve members of the armed forces with loans in the independent sector. They specifically work with military service people who may face challenges securing a traditional loan option.

Challenges to Military Loans

The main challenge facing a member of the armed forces when it comes time to get a loan is a lack of credit history. While serving, the individual will not likely take loans, hold credit cards or otherwise have a large financial record. The military takes care of most living expenses, and the individual may lack interaction with the private banking arena for some time. Furthermore, if the individual is deployed at any point, it is possible that his or her address will change multiple times, he or she will lack a US address or he or she will miss loan payments while overseas. In these cases, the credit score will drop.

Basic Military Loan Requirements

In order to get a military loan, the individual applicant must be in the armed forces. Typically, military loan lenders will work explicitly with individuals who have served a tour of duty or otherwise been deployed to an army base. Individuals who have not experienced this condition, such as members of the Reserves who have never been called, should not face the challenges that would lead to a military loan option. These people should be able to secure a traditional loan. In addition to needing the status of an active duty service person, an applicant for a military loan will have to meet basic credit requirements.

Forgiven Credit Problems on Military Loans

A military loan lender will like to see a decent credit score. However, while a traditional lender will place emphasis on the fact that the borrower has taken loans, has a high credit limit or has used a credit card well, a military lender may forgive these factors. Since military lenders understand it is not often possible for a service person to observe these good credit practices, the lender will not come to expect them. For example, 15 percent of a credit score depends on the length of credit history. If a service member's score is low because of a short history, a military lender may forgive this problem.

Red Flags on Military Loan Applications

While a low credit score is possible when securing a military loan, a severely compromised credit score will be a red flag. If the individual has defaulted on loans, entered foreclosure or filed for bankruptcy, the lender may see red flags. If the applicant owes back taxes or federal debts, the lender may also be wary. To conquer these red flags, a bad-credit military loan contract may require collateral or a federal guaranty. Guaranties are issued through the Department of Veterans Affairs. The amount of the guaranty is based on military service in addition to other factors.