You've packed your boxes, leased your condo, sipped champagne at your bon voyage party and learned a few essential phrases in French (or Korean). One phrase that you probably won’t need to learn, however, is credit score. That’s not because they don’t exist in other countries; in fact, the American credit bureau Equifax operates in 15 countries spread across Europe and Latin America.
For some globetrotters, the headache that arrives the morning after the bon voyage party can’t be blamed on the third glass of champagne. It might be from that anxiety-provoking question: Will my credit score matter overseas?
The short and sweet answer – especially sweet to those whose credit score is in the lower ranges – is that no, your credit score won’t follow you overseas. In that sense, your credit score will do you less damage than a nasty cold caught at the JFK departure gate.
Up in the Air
The moment your 747 reaches altitude on the way to London Heathrow or Tokyo Narita airports, your American credit score does not exactly disappear into thin air. However, its power – at least on foreign soil – is negligible to nonexistent. 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 United Kingdom, lenders consider voting behavior as a positive sign – which means that unless you become a UK citizen and sign up for electoral polls, you'll have to seek out other ways of establishing credit.
It's not that overseas lending institutions don't care about the credit history you´ve established in your country of origin. Countries such as Germany – which, as the financial stalwart of the European Union, has a highly sophisticated banking and credit system – simply lack the systems to thoroughly investigate a potential client's credit history in the United States.
While technology may have posed 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 Your Credit Is So-So ...
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 – is one added appeal of an overseas adventure. This fresh start applies to those who have declared bankruptcy as well: Although total filings by businesses and individuals fell to 1.03 million in 2013 from 1.19 million in 2012, according to a report from the American Bankruptcy Institute, that's still no small number. In 2014 more than a million bankruptcies – both business and individual – were filed in the United States. While a bankruptcy doesn't “disappear” on your credit back home, it will have far less power (if any) overseas.
If the news that your credit score means about as much in Bogota as your local gym membership card provokes a sigh of relief, great. Just don’t get too relaxed. 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.
If Your Credit is Excellent ...
What if you're embarking on a foreign assignment, and you'd happily pack your credit score along with the family dog? While you can’t exactly take it with you, you can maximize its impact on overseas lenders with a few strategies.
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 or 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.
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, by opening an American Express account overseas, your foreign cardholder status may positively influence your application back home. At the very least, most banks will issue secured credit cards with a reasonable amount of capital. Here's the bad news: That brilliant credit you’ve established in the U.K. won’t matter much back in the States.
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. If you've struggled with your credit, moving abroad might present a fresh start from a financial perspective as well as a cultural one.
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.