Moving abroad? Your credit history might not follow
No matter how good your credit in the U.S., expect to start over
As technology advances in the banking and credit communities, you'd think something as simple as a credit rating should be readily available to banks, credit institutions and lenders outside of the United States.
When Jason Hinkley, 30, an American national and information technology specialist living in Germany, started shopping for a local mortgage lender outside the city of Wiesbaden, he found that it was not the case.
"Not many Americans have bought a home here," says Hinkley. "The rules are really different."
Lending agencies asked Hinkley for income verification and about any outstanding debts he might be carrying during the loan application process, but had no way to confirm his previous credit history from the United States.
Differing identifiers and consumer protection laws
James Jones, Consumer Education Manager at Experian in the United Kingdom, says the need to establish credit in a foreign country using your standing credit history is an issue for many people. But as it stands now, it simply cannot be done.
"Your credit record can't actually be transferred between the United States and the United Kingdom, or vice versa," Jones says. "Nor can it be done between the United Kingdom and Europe or the United States and Europe. There is just no facility to do so at the moment."
That lack of communication goes both ways. Linda Sherry, director of national priorities at Consumer Action, a nonprofit consumer advocacy and education group based in San Francisco, says that foreigners coming to the United States will also have difficulty using their past history to apply for credit. "Even if a country has a viable credit reporting system -- and many countries don't -- those systems won't talk to the ones here in the United States."
Each country has its own format for credit-related data as well as stringent laws to protect consumer data, Jones says. Those formats include the unique identifiers that allow agencies to track your credit use. "In the United States, your credit history is built around your Social Security number," says Jones. "That's not the case in the United Kingdom; we have a different system with different identifiers."
As more legislation is passed to protect consumer data and reduce identity theft, varying national and international laws might make it illegal for one country to share an individual's credit history with a foreign lender. "From a United Kingdom perspective, we have very strict consumer protection legislation that stops any credit information from being transferred out of the country," says Jones.
As such, people who move abroad will not be able to provide foreign lenders with instant access to their hard-won credit histories. "They are, in effect, starting from scratch," says Jones. "They have to earn and build the lender's confidence."
Using current credit products abroad
It's possible to bypass applying for credit with international lenders by using existing bank accounts, credit cards or lines of credit. "If you have American cards already, they will still exist wherever you go. You can change the cards to an overseas address and they will still be viable," says Sherry.
By doing so, consumers might be subject to extra costs and fees. "We know that credit bureaus don't transfer credit history across countries," says Rosa Alfonso, spokeswoman for American Express. "American Express card members can, of course, use their cards all over the world. But it is beneficial to have a card in the currency of the place in which you reside."
Without that, says Alfonso, consumers might be subject to currency conversion fees when purchases are converted from the local currency to United States dollars. There could also be other fees, depending on purchase type and country.
Alfonso suggests that before an international move, you contact credit card companies to switch to the most appropriate product for your new residence. With the American Express card, you might have to apply for a different card. Alfonso reassures existing card members that American Express would do everything in its power to make the transition seamless. A new application doesn't negate a previous relationship, she says.
You can take it with you
Alfonso says that at American Express, every application is evaluated case by case, even when an American credit report is not available. "We definitely want to be able to establish income verification from a reliable source," she says. "But every application is evaluated on its own merits. It is not one size fits all."
Sherry says that other credit card companies might also be willing to look beyond your credit report. "A thin credit history does preclude you from getting most types of credit in the United States. But credit reports are not the only criteria that creditors rely on."
Though your credit report cannot be automatically transferred to lenders, Jones and Sherry suggest you provide it in the form of a hard copy or old-fashioned letter of credit from your bank back home.
"You can always print out a copy of your credit report and provide that to lenders," says Jones. "In the U.K., we also send out an explanatory guide with the report, so that would be useful to keep as well. It's possible that with a paper copy to work from, a lender might try to verify the information." In Hinkley's case, an income verification statement from his employer satisfied the German banker who guaranteed the home loan.
Jones firmly recommends that any time you apply for credit with unusual circumstances, you speak with the lender about your situation before applying. This could prevent a large number of credit searches from creating a red flag on your budding local credit record.
If your history doesn't transfer, Sherry and Jones suggest gradually building up your credit history in your new homeland. Sherry suggests looking into a secured credit card product where you can deposit money as the security for the credit line. Jones says it may be as simple as opening a bank account.
"Overdraft protection is a credit product," Jones says. "If you open a bank account and they see your regular income and outgoings, the bank may be eventually inclined to offer overdraft. That can later help you apply for other credit products."
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