By Jason Stverak
I’ve spent years advocating for the financial well-being of those who serve our nation, and one thing is abundantly clear: it is fundamentally unfair that servicemembers, Coast Guard personnel, or federal employees should suffer lasting damage to their creditworthiness because of a congressional funding lapse.
Yet that’s exactly what happens during government shutdowns. When paychecks are delayed or canceled, missed mortgage, loan, or credit card payments trigger late fees and can inflict lasting harm on credit reports and scores. Even if Congress eventually passes backpay, the temporary budget standoff can translate into long-term financial damage – lower credit scores, higher borrowing costs, and even potential security clearance issues for servicemembers. No American’s credit report should be scarred because Congress fails to do its job.
Military Families’ Financial Fragility
The financial vulnerability of military families amplifies this problem. Many military and federal employee households live paycheck to paycheck, without a cushion to absorb missed pay. About a quarter of military families have less than $500 in savings, meaning a single missed paycheck can be devastating. As one military spouse put it, “We are not exactly a demographic set up to absorb a missed paycheck… I could not absorb a $600 error in my paycheck and still put food on the table for three kids”. Broader surveys echo this reality: fewer than 1 in 3 military families have even $3,000 in savings, and nearly 1 in 4 struggles to put food on the table. In a shutdown, these families face an immediate crisis. Bills don’t wait for political gridlock to be resolved. A funding lapse in 2018–2019 left nearly 50,000 Coast Guard members unpaid, and the recent shutdown put roughly 1.3 million active-duty servicemembers at risk of missing their mid-month paycheck, alongside thousands of Coast Guard members and civilian federal employees. Simply put, many who wear the uniform or support our government are not financially equipped to absorb even one missed paycheck.
When those paychecks don’t arrive, families do whatever it takes to cover essentials – often turning to credit cards, loans, or skipping payments on bills. Beyond the immediate strain of unpaid bills, each missed payment can inflict lasting harm on a family’s financial future. A late mortgage or auto loan payment can drag down a credit score for years, long after the shutdown ends and backpay (if any) is issued. As House Financial Services Committee leaders warned, “missed payments caused by the government shutdown could have undue, lasting impacts on [affected individuals’] reported creditworthiness”. In other words, a short-term political impasse can unfairly tarnish someone’s credit profile for the long haul. That can mean higher interest rates on future loans and even jeopardized security clearances – all because of a situation they couldn’t control.
Credit Unions As First Responders In Financial Crises
During the recent shutdown, I witnessed the credit union community spring into action as financial first responders. From day one of the funding lapse, defense credit unions and credit unions nationwide mobilized to “put members first,” offering emergency relief to tide families over “until Washington gets its act together.” We are people helping people, and when our members were in need, we stepped up immediately. Many DCUC member credit unions provided an extraordinary range of relief measures, essentially creating a financial lifeline for those living paycheck-to-paycheck. These efforts included:
- Zero-interest or low-interest emergency loans (often up to $5,000) to cover missing pay, with minimal paperwork and deferred payment terms. These short-term furlough loans acted as no-cost bridges for families suddenly without income
- Skip-a-Pay options on existing loans (mortgages, auto loans, personal loans) allowing members to delay payments without any penalties or damage to their credit scores. By deferring payments 30–60 days, credit unions ensured a missed paycheck wouldn’t automatically turn into a delinquency on a servicemember’s credit report
- Fee waivers and penalty forgiveness, such as waiving overdraft fees, ATM surcharges, late fees, and early withdrawal penalties for affected members. We also offered free financial counseling to help families budget through the crisis
These relief programs were more than gestures of goodwill – they were financial lifelines. Short-term, no-cost bridges like 0% loans, skipped payments, and waived fees kept thousands of military and federal employee families afloat, preventing immediate catastrophe while preserving their long-term credit health. One credit union CEO described the goal well: provide “immediate financial relief and peace of mind” so members can weather the storm. By ensuring shutdown-related payment delays would not harm members’ credit, credit unions demonstrated the mission-first values that define our movement. We proved yet again that when crisis strikes – whether a natural disaster, a pandemic, or a government shutdown – credit unions will be there on the front lines, supporting those who serve our country.
However, even as we recognize these heroic efforts by credit unions, we must also acknowledge their limits. Credit unions could only assist with loans and accounts they hold; servicemembers might still have credit cards, mortgages, or other obligations with lenders who were less proactive. Not every bank or creditor offered the kind of forbearance that we did. Regulators and industry groups did encourage flexibility – for example, federal agencies put out guidance in 2019 urging lenders to modify loan terms and avoid reporting adverse credit information for furloughed workers and servicemembers. The credit bureaus even have special reporting codes for situations like this; when an account is placed in forbearance or deferred due to a shutdown, it will have “no negative impact” on the consumer’s credit score, since FICO and VantageScore treat such accommodations neutrally. In theory, no worker or servicemember should have to suffer a credit score drop because of a shutdown, given these tools.
In practice, though, not everyone benefits from these voluntary measures. Some affected individuals don’t know to contact their creditors immediately; others are too proud or fearful to ask for help. And even those who do reach out might encounter a lender that lacks clear policies or proactive programs for shutdown relief. Gaps in awareness and implementation mean that despite everyone’s best intentions, some servicemembers and federal employees still saw their credit tarnished due to missed payments in the shutdown. Relying on the goodwill of individual institutions, while laudable, is not a sufficient nationwide safety net.
Stopgaps Aren’t Enough: We Need A Systemic Solution
As I noted in my recent letter to Congress, credit unions’ relief efforts – while vital – are “stopgaps, not solutions.” Each time the government shuts down, credit unions have stepped up with emergency loans and skip-pay options, helping thousands of military families weather the storm. But this charitable, ad-hoc approach should not be the permanent plan. We cannot keep leaving our servicemembers’ financial security to luck and last-minute charity. Credit unions will always stand by our servicemembers, but Congress must act to remove the threat of financial instability altogether. In short, we need to fix the problem at its source: ensure that those who serve our country never miss a paycheck – or at least never see their credit scores suffer – due to political brinkmanship.
What might such a solution look like? For one, Congress should establish a permanent safeguard so that any obligations missed because a paycheck was withheld in a shutdown are not reported negatively on credit files. During the COVID-19 crisis, lawmakers recognized the importance of protecting consumers’ credit: the CARES Act required lenders to report accounts as current if the borrower had an approved pandemic-related forbearance. A similar commonsense protection should apply here: if a federal employee or servicemember can’t pay a bill on time because the government didn’t pay them, that missed payment should not ruin their credit. Lenders can report a special code (e.g. “affected by federal shutdown”) or simply mark the account as current during the lapse. This would ensure credit scores aren’t dinged for what is truly an involuntary hardship. Importantly, such a policy needs to be applied consistently across all lenders and servicers – not just as a courtesy, but as a matter of law or regulation.
In the meantime, regulators should also take a more assertive role in ensuring consistency. I applaud those in Congress who have already pressed financial regulators on this issue. House Financial Services Committee Ranking Member Maxine Waters, for example, wrote to federal regulators and industry groups urging that “modified credit arrangements intended to help customers…do not end up being reported…in a manner that hurts creditworthiness.” Regulators have issued guidance in past shutdowns, encouraging “prudent efforts” to assist affected borrowers and not report them as delinquent. But these guidelines must be refreshed and amplified at each threat of a shutdown – and financial institutions must be examined for compliance. The credit bureaus, for their part, should continue to accommodate special payment codes or consumer statements flagging shutdown-related delinquencies. In plain English: no shutdown-related accommodation should ever result in a negative credit mark. If the existing voluntary system isn’t achieving that, then Congress and regulators need to hold the industry accountable to that standard, through stronger oversight or new rules if needed.
Ultimately, the surest way to protect the finances of our troops and public servants is to ensure they never miss a paycheck in the first place due to a budget impasse. Short of that, we must put guarantees in place so that a funding lapse doesn’t also mean a personal financial crisis. It’s time to translate the lessons of this shutdown into action. Our servicemembers, Coast Guard personnel, federal employees, and contractors all deserve dependable, systemic protections. They have enough uncertainty in their lives – their credit score shouldn’t be one more worry when duty calls and Washington falters.
Congress needs to step up. The credit union movement has demonstrated that we can provide critical relief in emergencies, but we shouldn’t be the first and only line of defense. I urge our lawmakers: work together on a bipartisan basis to guarantee that never again will those who defend our nation or keep our government running be penalized for Congress’s inability to pass timely appropriations. Our heroes should never have to choose between serving their country and preserving their credit. Let’s fix this flaw in our system – our servicemembers and federal workers have earned at least that much peace of mind.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.