If you are traveling internationally, you will likely find that the American version of the credit score is a financial concept that is foreign to those living outside of the United States. Credit scores, as we understand them in the United States, are a measure of creditworthiness.
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 credit bureau Equifax 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 overseas? The short answer is no.
- A credit score accrued in the United States has no bearing overseas; it will neither harm nor help you in overseas financial dealings.
- The technology doesn't yet exist for the possibility of international credit scores; additionally, laws prohibit the sharing of credit information overseas.
- Auto dealers, credit card providers, and other lenders have their own means of assessing your worthiness as a potential creditor, often specific to country or region—outstanding debt and income verification are typically required.
- However, it can be challenging for some expatriates to establish credit-worthiness on foreign soil; traditional credit-building techniques like taking out a store credit card or a pre-paid debit card can help.
- If returning to the U.S. at some point is a possibility, then make sure to keep U.S. based credit cards active and payments up-to-date; all other premiums or payments need to be kept up-to-date as well.
Up in the Air
It's true that many countries, including Canada and the U.K., have credit scoring systems that are not entirely dissimilar to the American system. Yet, not only is there no communication between the systems, expect to be surprised by key differences in the necessary components of establishing credit in other countries. For example, in the U.K., lenders consider voting behavior as a positive sign. This means that unless you become a U.K. citizen and sign up for electoral polls, you'll have to seek out other ways of establishing your credit in the U.K.
It's not that overseas lending institutions don't care about the credit history you've established in your country of origin. Rather, there is a lack of systems in place to thoroughly investigate a potential client's credit history in the U.S. Even a country like Germany, which has a highly sophisticated banking and credit system, does not have this capability, and for good reason.
While technology may have created an initial barrier for the kind of global credit score system that might now be technically feasible, laws at the national and international level prohibit sharing credit histories with overseas lenders. The reason is consumer protection: The growing trend of identity theft, which preys upon customer data, makes such legislation essential.
What to Expect
If foreign lenders will not have access to your American credit score, what can you expect if you want to, say, open a credit card with a local bank or buy a car? Overseas banks and lending institutions may indeed inquire about outstanding debts in your home country. While such inquiries may not be followed up with verification, it goes without saying that it´s crucial to be truthful when dealing with overseas financial institutions. Expect to furnish income verification from your current employer, which should be fairly simple to obtain from your new place of work.
If you've consistently missed credit card payments or defaulted on a car loan, perhaps the promise of starting from scratch (credit-wise, at least) adds to the appeal of an overseas adventure. This fresh start applies to those who have declared bankruptcy as well: Annual bankruptcy filings in the calendar year 2020 totaled 544,463, compared with 774,940 cases in 2019, according to statistics released by the Administrative Office of the U.S. Courts. While that is a decrease of 29.7%, it's still no small number.
While an overseas relocation might offer a fresh start for those whose credit score back in the States prevents them from getting the best interest rates on major purchases like cars or homes, it’s not a catch-all solution (especially if you plan to repatriate to the United States in the future).
Bankruptcy, like your other debt obligations, won't disappear from your credit history in the U.S., but it will have far less power (if any) overseas.
Though expatriation may render your stellar credit score less important, it doesn´t mean it can't be useful. While your credit history will not automatically transfer to foreign lending institutions, there are several ways to capitalize on your strong financial history when dealing with an overseas bank. One simple measure would be to print out your credit report, along with any accompanying documentation, to bring to appointments with lenders. Another strategy? Before you make the move, ask your bank to furnish you with a hard copy, and sign a letter on official stationery that details your credit history.
What is the future of personal finance for American expatriates? Recent changes to U.S. banking and tax laws point in the direction of more – not less – cooperation between American and overseas banks. But many Americans who take jobs on foreign soil find it's the opposite: Securing loans for homes or cars in countries where they hold no prior credit history is a challenge.
Building Credit Abroad
What do you do in the meantime? First, don't give up your U.S. credit cards. If possible, keep active savings, checking, and credit card account. Two caveats: Be sure to follow any minimum usage requirements on the account so it is not simply closed for inactivity, and use a card with no foreign transaction fees. Even if you're living abroad, what you buy on your U.S. card will count as a foreign transaction and add to the cost of each purchase.
If you can't get a standard credit card in your new country, you may need to start by trying to open a store credit card (despite the high-interest rates they charge). Make regular purchases and pay the bills promptly to start building a local credit history. Meantime, try to open 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 waiting there for you; living abroad doesn't negate the U.S. credit score.
In 1940, when the American novelist Thomas Wolfe popularized the adage “You can't go home again,” presumably he wasn't referring to credit scores. (To be fair, that was 49 years before the emergence of FICO scores.) Depending on your length of stay overseas, your credit – whether good, bad, or ugly – will be waiting for you upon your return.
If you plan to remain overseas for at least seven years, you'll find that any delinquencies or negative marks on your credit report will have disappeared within that time. If they remain, you should contact the credit bureau to request the removal of expired debts from your report. Thankfully, a poor-to-below-average credit score can be repaired in a few years with consistent effort, though major financial setbacks, such as having a home in foreclosure or unpaid debt in collections, can take seven to ten years to resolve.
If you originally set off towards foreign shores with excellent credit, you may worry that your good credit history will “disappear” after a number of years overseas. While it can be challenging to reestablish strong credit after a decade or more without U.S. financial activity, there are several ways to circumvent a major problem.
First, there's no need to close all of your U.S. accounts before leaving: If possible, keep active savings or checking and credit card accounts and do enough transactions to keep them open until you return. The same is true for accounts in your adopted country: Until you re-establish credit in the United States, keep your foreign accounts and credit cards open, unless it's simply not feasible to do so. Just make sure to comply with the new FBAR regulations that mandate that all Americans with overseas financial holdings report them to the U.S. government.
Finally, you may want to check if any of your existing credit card accounts have established a global card relationship in the area you're looking to relocate. For example, if you already have an American Express account opened in the United States, your cardholder status may help you establish local credit in your new country while maintaining your good credit history in the U.S.
While there’s no quick fix for repairing bad credit – whether solo or shared – moving overseas can offer a way to remake your credit history with a better outcome.
The Bottom Line
If the thought of abandoning your admirable credit score ¨back home” upsets you, don't fret: It will be there when you return – provided you return within a handful of years and/or remain vigilant about keeping your accounts active. And if you've struggled with your credit, moving abroad might present a fresh start from a financial perspective as well as a cultural one.