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Do Credit Scores Matter Outside the US?

Here in the United States, credit scores are a fact of life—and it’s one that not everyone is happy about. This raises the question: Can you escape credit scores if you move to another country? The short answer is reminiscent of the sometimes puzzling ways of credit scores themselves: yes and no.

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When you move to another country, you typically start with a blank slate, credit-wise. (However, don’t count on getting a visa if you’re ditching serious consumer debt back home—they check for shenanigans like that.) Other nations use different credit scoring systems, due to differing regulations from country to country regarding credit reporting and usage of information.

The credit bureau Equifax operates in 15 countries through Europe and Latin America, says Daryl S. Toor, AVP of media relations for Equifax, adding “the complexity of reporting varies in each country with their respective regulations.”

As to how scoring works in foreign countries, lenders still look at how you’ve conducted your finances, the timeliness of payments, and how much of a risk you are. Carrie Coghill, director of consumer education for FreeScore.com, explains some of the variations: Like Canada itself, the credit scoring in the Great White North is similar to America but slightly different (or “same same but different,” a phrase picked up by expats in Asia), working on a scale of 300 to 900 (vs. America’s low 300s to 850), with two credit bureaus (vs. America’s three).

In Europe, it varies by country but generally, Coghill says “Each loan application is reviewed based on your current salary, your family situation, current debts, residence status, and other factors. However, if you don't make timely payments on loans, the lender puts you in a special file that's shared by all lenders across most of Europe, and you'll have a great deal of difficulty getting a loan.”

In the U.K., there are three credit reference agencies, and lenders also take into account court judgments and whether the borrower has voted in elections.

“When I moved from the U.S. to the U.K., I learned that my U.S. credit score had absolutely no bearing on my ability to secure credit in the UK,” saidDevon Dudgeon of the Devon Inspiration marketing agency. “I was able to get a credit card but, at least initially, the limit was very low. Getting credit became much easier once I got on the electoral roll.”

In Latin America, credit is not much of an issue to begin with, according to Daniel Prescher of International Living magazine—it’s mostly a cash economy. He notes that some U.S.-based companies offer mortgage financing on foreign properties in Mexico, so in that case your American score would come into play. But he adds, “Very few expats in Latin America that I know of make major purchases with credit...the cost of living is generally low enough to allow expats to live within their means more easily than in the U.S.—that's part of the attraction to living abroad.”

Margaret Summerfield of Pathfinder International adds, “it’s fairly difficult to get mortgage financing in Latin America. When you do, the interest rate is usually much higher than in the US (in the 6-10 percent range on average), and you normally can’t get a fixed rate. Here in Panama (supposedly the “easiest” country in the region for foreigners to get financing) banks like HSBC and Scotiabank have offered non-resident financing for many years. The approval process takes much longer than in the US (weeks if not months rather than days). Credit checks are carried out in the US as part of the paperwork process. “

Philip Guarino, an international business consultant with Elementi Consulting based in Boston and Milan, also brings up the use of cash for homebuying in Europe: “Most real estate transactions I see abroad are cash-based.”

Another point to consider: If you don’t maintain your credit in the U.S. while living abroad, you lose it and will have to start over once again upon return to the States. “All the credit history I built up in the U.K. has made no difference here,” said Dudgeon. “Plus, it has made it more complicated to get a mortgage.”

Todd Huettner, a mortgage broker with Huettner Capital, recommends maintaining the U.S. credit profile, which is easy to do in the Internet age. There are two ways to do this: Huettner gives the example of his client who is moving back from Brazil who visited the States every other month. The client kept a U.S. cell phone and used U.S. credit cards when visiting, then he had the bills paid automatically in case he wasn’t in the country when they came.

On the other hand, another of Huettner’s clients moved back from London, where all the finances were in his business’ name. He returned to the U.S. to discover he had no personal profile. “No credit is almost as bad as bad credit—you still can’t do anything with it,” Huettner says. The good news is that it’s easier to fix. “[The credit bureaus] will recognize you had [credit] before.”

His other method for those living abroad to keep the embers of their U.S. credit glowing is to decide a date once a year—a birthday or a holiday—to send a gift and pay for it with a credit card. Or use it to pay for products that “don’t know or care where you are” such as a book for a Kindle or songs for an iPod.

And for those with no U.S. score who do have to start from square one when they return, Huettner suggests opening a secured line of credit (prepaid credit card), get a trusted friend to add you as an authorized user on their card, or ask a local bank that you do business with if they can put a card in your name.

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