Is my credit score useful outside of the United States?

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If you are traveling internationally, you will likely find that the US version of the credit score is a financial concept that is alien to those who live outside of the United States. Credit scores, as we understand them in the United States, are a measure of credit worthiness.

While other countries may not use the credit score as we understand it as a measure of creditworthiness, they have similar systems in place to assess a consumer’s risk of default. In fact, the Equifax credit bureau operates or has investments in 24 countries in North America, Central and South America, Europe, and the Asia-Pacific region.

That said, will your credit score matter abroad? The short answer is no.

Key points to remember

  • A credit rating accumulated in the United States has no impact abroad; it will not harm you or help you in your financial transactions abroad.
  • The technology does not yet exist for the possibility of international credit scores; In addition, laws prohibit sharing credit information abroad.
  • Car dealerships, credit card providers, and other lenders have their own ways of assessing your creditworthiness as a potential creditor, often country or region specific. A debt and income verification is usually required.
  • However, it can be difficult for some expatriates to establish their creditworthiness on foreign soil; Traditional lending techniques, such as using an in-store credit card or prepaid debit card, can help.
  • If it is possible to return to the United States at some point, be sure to keep US credit cards active and payments up to date; all other bonuses or payments must also be kept up to date.

In the air

It is true that many countries, including Canada and the United Kingdom, have credit rating systems that are not entirely different from the American system. Yet, not only is there no communication between the systems, but expect to be surprised by the main differences in the elements required for establishing credit in other countries. For example, in the UK, lenders view voting behavior as a positive sign. This means that unless you become a UK citizen and register for election polls, you will need to look for other ways to build your credit in the UK.

It’s not that foreign lending institutions don’t care about your credit history in your home country. On the contrary, there is a lack of systems in place to thoroughly investigate a potential customer’s credit history in the United States. Even a country like Germany, which has a very sophisticated banking and credit system, does not have this capacity, and for good reason.

While technology may have created an initial hurdle for the kind of global credit scoring system that may now be technically feasible, laws at the national and international levels prohibit sharing credit history with foreign lenders. The reason is consumer protection: the growing trend of identity theft, which attacks customer data, makes such legislation essential.

What to expect

If foreign lenders do not have access to your US credit score, what can you expect if you want, for example, to open a credit card with a local bank or buy a car? Foreign banks and credit institutions can indeed find out about unpaid debts in your home country. While such investigations may not be followed by an audit, it goes without saying that being honest is crucial when dealing with foreign financial institutions. Expect to provide proof of income from your current employer, which should be fairly straightforward to obtain from your new workplace.

So-So Credit

If you’ve consistently missed credit card payments or defaulted on a car loan, maybe the promise to start from scratch (at least from a credit standpoint) adds to the allure of an adventure at home. ‘foreigner. This fresh start also applies to those who have declared bankruptcy: annual bankruptcy filings in calendar year 2020 totaled 544,463 cases, up from 774,940 cases in 2019, according to statistics released by the Courts Administrative Office. Americans. Although this is a decrease of 29.7%, it is still not a small number.

While an overseas relocation may offer a fresh start to those whose credit scores in the United States prevent them from getting the best interest rates on major purchases like cars or homes, it doesn’t. is not a catch-all solution (especially if you are planning to repatriate to the United States in the future).

Bankruptcy, like your other debt obligations, will not disappear from your credit history in the United States, but it will have much less power (if any) abroad.

Excellent credit

While expatriation can make your outstanding credit score less important, that doesn’t mean it can’t be helpful. While your credit history is not automatically transferred to foreign lending institutions, there are several ways you can take advantage of your strong financial history when dealing with a foreign bank. A simple measure would be to print your credit report, as well as any accompanying documentation, to bring to meetings with lenders. Another strategy? Before you move, ask your bank to provide you with a hard copy and sign a letter on official letterhead that details your credit history.

What is the future of personal finance for American expats? Recent changes in US banking and tax laws support increased cooperation between US and foreign banks. But many Americans who take jobs overseas find it to be the opposite: getting loans for homes or cars in countries where they have no credit history is a challenge.

Build a credit abroad

What are you doing in the meantime? First, don’t give up on your US credit cards. If possible, keep savings active, check and credit card Account. Two caveats: make sure you meet the minimum account usage requirements so that it doesn’t just get closed for inactivity, and use a card without foreign transaction fees. Even if you live abroad, what you buy with your US card will count as a foreign transaction and be added to the cost of each purchase.

If you can’t get a standard credit card in your new country, you may need to try opening a store credit card first (despite the high interest rates it charges). Shop regularly and pay bills quickly to start building a local credit history. In the meantime, try opening an account at a local bank and get used to paying cash for many purchases.

Be prepared that if you return to the United States your credit score will be there waiting for you; living abroad does not negate the credit rating of the United States.

Go home

In 1940, when American novelist Thomas Wolfe popularized the adage “You can’t go home anymore,” he likely didn’t refer to credit scores. (To be fair, that was 49 years before the emergence of FICO scores.) Depending on how long you’ve been abroad, your credit – whether good, bad, or lousy – will be waiting for you when you return. .

If you plan to stay abroad for at least seven years, you will find that any defaults or negative marks on your credit report will be gone during that time. If they remain, you should contact the credit bureau to request the removal of the expired debts from your report. Fortunately, a low to below average credit score can be fixed in a matter of years with constant effort, although major financial setbacks, such as a home foreclosure or unpaid debts in collection, can take from seven to ten years to solve.

If you originally went to foreign shores with excellent credit, you may be concerned that your good credit history will “disappear” after several years abroad. While it can be difficult to restore strong credit after a decade or more without U.S. financial activity, there are several ways around a major problem.

First, you don’t need to close all of your US accounts before you leave: if possible, keep savings or checking and credit card accounts active and make enough transactions to keep them open until you return. . The same goes for accounts in your adopted country: until you restore your credit in the United States, keep your foreign accounts and credit cards open, unless it is simply not possible to do so. do it. Just make sure you comply with the new FBAR regulations that require all Americans with financial assets abroad to report them to the U.S. government.

Finally, you might want to check if any of your existing credit card accounts have established a global card relationship in the region you want to move. For example, if you already have an American Express account open in the United States, your cardholder status can help you establish local credit in your new country while maintaining your good credit history in the United States.

While there is no quick fix to fixing bad credit – whether solo or sharing – moving abroad can offer a way to rebuild your credit history with better results.

The bottom line

If the thought of ditching your admirable “back home” credit score upsets you, don’t worry: it will be there when you return – provided you come back in a few years and / or stay alert. keep your accounts active. And if you’re struggling with credit, moving abroad can be a new beginning from a financial and cultural standpoint.

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