If you’re not careful, living outside of the United States can take a toll on your credit. These steps can help you keep your credit in good shape – no matter where you live.
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“We never dreamed life would take us on the path it has. More than a decade later, we still call Europe home,” Dombroski says.
Using credit cards with benefits like no foreign transaction fees helps the couple to make the best of earning income in U.S. dollars and spending abroad.
You’re an expatriate (often shortened to expat) if you, like Dombrowski and Davis, live in a country other than your own country of citizenship, but you eventually plan to return home. (This differs from an immigrant, who plans to move to another country and then permanently remain in his or her adopted country.)
Here are some reasons you might become an expat:
- Your company has sent you abroad for work purposes.
- You want to travel the world.
- You would prefer to retire abroad.
- You want to learn a new language.
- You’d like to gain a broader perspective.
Many expats save and earn a lot by living overseas, particularly if the cost of living is much cheaper in their new country. Expats often receive free or reduced-cost housing, a raise or “hardship allowance,” airfare home once a year and a transportation allowance from their jobs.
It’s important not to forget about student loans, mortgages, credit cards and bank accounts you have back home. Just because you leave your home country doesn’t mean that all of your financial responsibilities go away.
Here’s how to keep your credit and finances healthy while you live outside the United States.
Made the decision to become an expat? Consider how the country you choose to live in will impact your finances.
For example, much of Latin America is cash-based. Most locals pay cash for everything from groceries to rent every month. Your lifestyle could be affected if you’re reliant on credit cards or debit cards. Paypal, Xoom, TransferWise and Zelle are several ways you can bypass wire transfers and currencies, particularly if you rely on digital means of transferring money.
Not sure where you plan to land? Belize, Singapore, Switzerland and Germany are great options for ease of banking access, liquidity, lack of foreign transaction fees, positive foreign transaction exchange rates, easy wire transferring and excellent banking customer service.
Before you leave:
Dombroski and Davis made sure to give their money TLC before, during and after becoming expats.
“We pay off credit card balances monthly, which establishes and regularly keeps credit history updated. We also maintain bank accounts back home in the U.S. and use services like TransferWise, which offer low fees for currency exchange when we transfer money between our U.S. and French accounts,” Dombroski says.
Dombroski says there’s good reason to plan carefully.
“A lack of U.S. credit activity or a U.S. address can leave us unable to obtain new credit cards or loans. It can make it tough to open a bank account. It can even leave us vulnerable to identity theft.”
Here’s a look at a few common mistakes to avoid before, during and after living abroad.
1. Canceling credit cards and closing bank accounts.
Whenever you close a healthy credit card account, you damage your credit score. Does that mean you should keep every credit card account open while you’re away? Not necessarily. Individual store credit cards probably aren’t worth keeping unless you plan to do a lot of online shopping with that retailer.
If you decide to eliminate some of your credit cards before you leave, consider canceling them one by one over time, rather than all at once. For those you retain, make sure to contact the company to let it know you will be living abroad, otherwise your overseas purchases may raise suspicions of identity theft.
While you’re making phone calls, it’s a good idea to also contact the three major U.S. credit bureaus (Equifax, Experian and TransUnion) to let them know you’ll be living abroad. They can place a fraud alert on your credit report, which will automatically show up if someone applies for credit in your name in the United States and may prevent identity theft.
Closing your U.S. bank accounts is a bad idea for the same reasons that canceling credit cards is. It’s becoming very hard for U.S. citizens to open bank accounts in foreign countries because of the increased reporting the U.S. government requires. It may also be difficult for someone returning to the U.S. to re-open a bank account.
And having a U.S. bank account can be handy. Online payment from your U.S. bank is the easiest way to pay your U.S. credit card statements. Also, you may prefer to receive at least some of your income in U.S. dollars.
2. Failing to inquire about banking differences
Whatever you do, don’t assume that banking will be the same for you abroad as it is here. You may need to make adjustments — including changing the password for your ATM card. You may have to change your ATM PIN from a four-digit number to a six-digit number.
If you’ve memorized your code by letters instead of numbers, memorize the numbers as well, especially if you’re heading somewhere (such as China) that doesn’t use the Roman alphabet.
You may be accustomed to moving funds between your accounts at will, but there may be restrictions on moving them between countries.
Some countries have currency controls, and depositing or exchanging a lot of foreign currency can raise concerns. For example, China has a daily exchange limit, and if you want to exchange above that, you have to bring your employment contract and paycheck stub.
You can save money on foreign transaction fees by applying for a credit card in your new country. However, it’s important to know how the rules for a foreign credit card may be different from those you’re accustomed to in the U.S. For instance, defaulting on your credit card in the United Arab Emirates or any other country can have dire consequences, and you could be prevented from leaving the country.
While living abroad:
3. Moving everything to your overseas address
It’s important to retain an address in the United States, experts advise. Without one, it may be difficult to maintain your U.S. bank account and to re-establish credit when you return home. Use a mailing service like Traveling Mail or Earth Class Mailbox, which will provide you with a U.S. address and provide you online access to scans of your mail.
A second option is to ask a trusted friend or relative in the U.S. to receive your mail. Many expats, especially those who live in places where phone or internet access is unreliable, also give power of attorney to someone back home.
This can be an effective way of dealing with your finances and can help prevent late fees and other problems if you can’t easily monitor your accounts yourself. But be very careful who you choose for this responsibility: It should be someone you implicitly trust and can rely on to handle money the same way you would.
4. Not staying alert to credit and identity theft
“It’s important for expats to regularly monitor their credit report,” says Dombroski, who has a credit report monitoring service and checks her credit report regularly. “As expats, you typically use your information online and electronically far more frequently than when living in your home country.”
You may also receive notifications of security breaches at retailers or other companies to whom you previously gave your data for products or services, she says.
“These things can make expats more susceptible to identity theft.”
You can receive a free copy of your credit report from each of the three major credit bureaus at least once every 12 months by visiting AnnualCreditReport.com.
Carefully review these reports and contact each one of the three credit bureaus if you see anything inaccurate. One in five people has an error on at least one of their credit reports, according to a study conducted by the Federal Trade Commission.
You can also get a credit monitoring service for a fee, typically between $10 and $30 per month at IDShield, IdentityForce, IdentityGuard or LifeLock. These companies would allow you to keep an eye on your credit report and score. Note: Credit monitoring services cannot prevent security breaches, but they can alert you to changes to your credit so you can deal with threats as they happen.
When you return:
5. Not trying to fix your credit.
What if it’s already too late for the advice in this article? Perhaps you’ve lived abroad without maintaining credit activity back home and now that you’ve returned, you are having trouble getting a loan. Don’t assume that all is lost.
Though few countries have a sophisticated credit system like the United States, there may be a credit bureau or its equivalent that can provide a report at your request. If not, you may still be able to demonstrate your creditworthiness by showing you owned property and paid a mortgage while you were overseas, or demonstrate that you regularly paid your rent and utilities.
You may be able to get verification of your mortgage or rent payments — the lender just needs to know where to send it and if it needs to be translated into a foreign language. If you had a good relationship with a bank or lender overseas, ask them to put something in writing or in an email confirming they would be happy to have you as a customer again if you returned to that country.
Any kind of reference showing you paid your bills and have a willingness to pay debt is going to be helpful.
In the meantime, it’s a good idea to start building up your credit history again with secured credit cards or even a co-signed loan if necessary. With credit reports used by everyone from prospective landlords to car dealerships, there’s a good chance you may need it.