What happens to your credit score when you move overseas?
Credit scores are a statement of ‘creditworthiness’ – the likelihood a borrower will default on their debt obligations.
They are calculated differently from country to country, and do not follow consumers when they relocate somewhere new.
“When you move abroad, you’re back to square one,” explains James Jones, head of consumer affairs at Experian.
“This is the case even if you’re moving somewhere governed by similar, or common, data protection directives to your home country, such as between EU member states”.
As a result, your credit score must be built and maintained in each country you live in. In the UK, a consumer’s credit report is held for three years – Brits moving back home after this time may be in for a shock when they discover there is no record of their previous financial history.
Starting off in a country without a credit rating can make getting established problematic. Two things you are likely to need to start settling in are a mobile phone and a bank account – both are credit products.
“Credit reports are a financial footprint, and allow credit product providers to use past habits to predict your future behaviour,” says Jones.
“A blank slate worries providers, as they’re unable to assess your reliability.”
This creates a Catch 22 scenario – you need to have a credit history to secure credit, and have secured credit to have a credit history. Thankfully, this conundrum is not inescapable. Nicolas Frankcom of uSwitch.com notes there are products which can be used to plug the credit gap.
“Most big banks offer basic accounts, with which consumers can do little except make deposits, withdrawals and some transfers – direct debits are out of the question, and most won’t even allow for in-store payments,” he says.
“These accounts may not improve your credit score, but they are essential for storing and accessing money, a service you’ll require almost immediately upon moving somewhere new.”
Before you move, investigate the basic accounts offered by the banks in your destination. It’s possible you may be offered ‘fuller’ account functionality if you can make a sizeable initial deposit. Jones also suggests seeing which banks (if any) in your destination have a presence in the UK, and vice versa.
“Banks operating where you’re headed that also have offices at home should be approached, as they may be able to carry out a check on your existing credit report,” he elaborates.
“If you’re moving to Spain, for instance, you may be able to secure credit products with Santander there, based on a reading of your current credit report by their UK office. This can be difficult, though, so don’t rely on it.”
Some mobile providers offer sim-only phone deals, with upfront payments every month and no credit check required.
“In the UK, giffgaff offers a number of different pay monthly sim-only deals,” says Frankcom.
“There’s no contract so no credit check, but your monthly payments help improve your credit score. The only downside is you’ll need to supply your own handset, either buying a new one outright or unlocking your existing mobile for overseas usage.”
There are also credit cards catering to the sub- and near-prime markets – and while you may have a peerless record of fiscal responsibility, you will be classified in these groups until you’ve proven yourself anew.
“On the downside, many of these cards have high APRs, and low credit limits – often between £100-300 – are common,” says Frankcom.
“On the upside, they’re not only great for building up a credit profile, but very useful for regular payments and bills initially, as you probably won’t be able to pay for either with a direct debit via your current account. Using the card for weekly outgoings, such as grocery shopping, can’t hurt either.”
Before applying for any new credit product, bear in mind it will have a bearing on your credit report whether you are successful or not. It’s a common myth that credit rejections have a negative impact on your credit rating – it’s applications that count against you. However, failed applications often to lead to more, in a hunt to secure approval. Several applications for credit in a short space of time can make you appear desperate for credit, and some lenders view this an unattractive attribute.
If you apply for several credit products, or a single product several times with different providers, Experian’s Jones suggests you space out your applications.
“Even small gaps make you appear less frantic to borrow, and portray you in a better light.”
Jones suggests consumers investigate new credit products before applying. Many providers will make their desired customer profile clear – if it isn’t obvious, then speak with the lender directly, and ask whether it’s likely you’ll be approved.
One way of ensuring you won’t be caught short when you move back home is to maintain your credit score there.
“See whether there’s a financial product you can keep running while you’re away, so you don’t totally wipe out your credit standing at home when you’re not around,” Jones advises.
Frankcom recommends maintaining a UK credit card, and using it to pay for ongoing charges at home (a magazine subscription, for instance, or a charity donation), or online orders – whether for delivery to your new country of residence, or download. Alternatively, if you intend to return to your home country frequently, keep it for spending on the trips back.
Also bear in mind in the UK, being on the electoral roll has significant implications for your credit score. It’s the first entry on your credit report.
“If at all possible, remain registered to vote in the UK,” he concludes.