As global as our economy has become, credit customs differ across the world. So if you’re an American considering a long stint abroad, you’re moving back to the states after years overseas, or you’re planning on moving to the United States for the first time, read on for how to ease the credit culture shock.
1. Lenders don’t care if you’re a big deal overseas
“If you want to come into the U.S. and buy a house, even if you have $1 million in the bank, you’ve paid your taxes, and you have a perfect credit rating in Switzerland, the U.S. treats you worse than they would if you were a teenager,” says Jonathan Lachowitz, founder of White Lighthouse Investment Management, a financial planning company specializing in clients living abroad.
Those entering the U.S. (or re-entering after many years overseas) may therefore find themselves barred from cards and loans – or offered less-than-ideal terms, says Lauren Stockard, expat services specialist from The Credit Concierge, which works with lenders and credit unions to help expats get a credit foothold in the U.S. The sting of rejection aside, the concept of being rewarded (via a better credit score) for carrying debt can be a foreign concept, especially for those who come from cash-based societies where debt is frowned on.
“People are coming in, and they’re thinking, ‘I’ve got $200,000 in my bank account, that should count for something,'” she says. “And the U.S., when it pertains to credit, unfortunately it doesn’t.”
2. You may have to start from the bottom
New arrivals aren’t the only ones with a blank credit slate. Americans returning from years overseas may find their credit has atrophied while they were away. For one thing, closed accounts eventually fall off your credit reports. For another, your credit score can wilt without a continuous and current payment history. FICO, for example, requires at least one account to have been reported to the credit bureaus in the past six months. If that requirement isn’t fulfilled, it can’t generate a FICO score.
So how can you build – or rebuild – your credit? Here are a few routes to take:
- Use your company’s connections: If you moved to the U.S. for work, see if your company offers credit help for new arrivals. Some large companies do, Stockard says, and some have relationships with credit unions that will be more willing to work with expats.
- Consider a secured card: These cards require you to put down a deposit with the bank to secure a credit line, making them easier to obtain than regular unsecured credit cards if you have money but no credit. This may not be an attractive option to those with a wallet full of premium cards from overseas banks. In fact, Lachowitz says his wife “felt rather second-class” when she went this route. But it’s a reliable place to start (Stockard recommends asking to be upgraded to an unsecured card after six months of good history). In fact, Lachowitz is surprised that secured cards are often marketed at those with poor credit, but rarely at expats.
“We have hundreds of thousands of foreign students and executives coming in from overseas every year,” he says. “We have a lot of wealthy people coming in who you’d think these banks would find attractive as customers.”
- Get a store card: Retailers can often be more lenient with approvals – and don’t worry if the credit limit you’re offered isn’t impressive.
“You could go to Best Buy and get a $500-limit credit card,” Stockard says. “That’s better than not having any credit, and that card will start reporting to the credit bureaus right away.”
- Check out options from your brokerage account: Some brokerage firms will issue a credit card with your account, Lachowitz says. And those accounts often come with perks for globetrotters, he says, including debit cards that reimburse you for ATM withdrawal fees.
- Look into student cards: If you’re in the U.S. to attend university, you have a shot at a student credit card. Several major issuers have student versions of their cards designed for those with a thin credit history.
3. Leaving the U.S.? Don’t cut your credit ties
Americans moving overseas for several years have a unique opportunity that new arrivals don’t – they can keep their U.S. credit history intact until they’re ready to re-enter. That means keeping at least some U.S. cards open.
“If you ever want to return to the U.S., if you let your credit essentially lapse by cancelling all your credit cards, re-establishing credit history takes time,” Lachowitz says. “So I almost always advise people moving overseas to do the best they can to keep at least two credit cards open.”
Keeping multiple cards alive (from different institutions) is vital, Lachowitz points out, because some banks may close your account if they learn you’re living overseas.
“Even big institutions can change from one day to the next, where it’s OK and then all of a sudden, they find out you’re living in France and close your account,” Lachowitz says.
Banks may also close cards due to inactivity, so make sure you use your cards occasionally.
“I would say, at a minimum, use a card four times a year, just to keep it open,” Stockard says.
Having open U.S. credit cards has other advantages, Lachowitz notes. You may need a U.S. card to buy goods from a U.S.-based online retailer, for example. And iTunes won’t allow you to use a foreign credit card with a U.S. iTunes account.
That said, keeping U.S. credit ties intact can raise tax issues. Some states will charge you income taxes, after you return, for all the years you were away – so having a card tied to a bank in that state could be problematic, Lachowitz warns.
4. Watch out for ID and data thieves
Credit monitoring services will flag new accounts opened under your Social Security number. You can also check for new accounts by pulling your credit reports at AnnualCreditReport.com. The other half of protecting yourself comes from watching for strange charges on your current cards – which could indicate your account information has been stolen.
“You absolutely want to check your transactions online,” Lachowitz says. “These days, it’s so easy to do that. One of the fastest ways to stop a card problem is to see a pending charge and question it.”
Banks are also concerned about data theft, so if the card is tied to a U.S. address, your bank may actually reject charges in another country – which can be an annoyance if the charge is legitimate.
“If you know you’ll be in a certain country, let your card company know, “Lachowitz says. “Or be prepared to call them when your card is refused, so you can say, ‘Yes it’s really me. I’m buying a meal in Paris.'”
5. Be prepared for credit cultural differences
Americans using their U.S.-issued cards in other countries should prepare for some hiccups. For one thing, there’s the EMV issue. Chip technology is standard in many other countries, and if your card doesn’t yet have an EMV chip, you might encounter confusion or push-back from merchants overseas.
It may also be more expensive to use your credit card abroad.
“In the states, we’re very used to merchants not being able to charge you more for using a credit card,” Lachowitz says.
In other countries, however, expect to see signs at some businesses and attractions listing various surcharges for using American Express, MasterCard, etc.
Finally, if you decide to get a card from a local bank in your new country of residence, anticipate different policies. For example, the lengthy grace period Americans enjoy when paying their credit card bills may not exist (or may be much shorter) on cards issued from foreign banks.