Expats and Credit Scores – Episode #69

Ex patriots and Credit Scores

Expats are much like high school grads when it comes to credit scores. They have no credit history, at least here in the U.S. but, they need to change this quickly. Be warned, it can take as long as 18 months and as little as 6 months to get a good credit score. Here are the steps to follow to establish credit:

1. Open a bank account. So here’s a difference from the young U.S. high school grad. As an ex-pat, your account may be red-flagged to make sure you are not trying to engage in nefarious activities like check fraud. This can last 90 days and prepare yourself, it may take a long time for items to clear in the meantime. If you spend funds before they clear, you will be hit with an overdraft charge, so be sure your checks have cleared. Make sure the bank you choose is a full service bank and offers secured credit cards, credit cards and personal loans in addition to checking and savings accounts. More on this in Step #3.
2. You need a Social Security Number. It’s a critical cog in the credit report machinery. Once you get this. You can start the credit building process.
3. Open a secured credit card with the same bank you got your checking accounts. Use the secured card, but try to only use 20-30% of the limit and pay all payments on time! Do this for 4 to 6 months.
4. Now, apply for an unsecured credit card from that same bank. Why the same bank? Your bank may place less weight on your credit score and judge you more on your history with them and thus, may be more likely to approve the application.
5. Get a personal loan from that same bank. Go for a small amount like $500. Why is this useful? A personal loan is an installment loan and this is a critical piece of the credit score factors pie. Just make sure you make payments on time. Yes, this could lead to what might be an unnecessary loan, but it will help your credit.
6. If you need a car, even if you can afford to buy it outright, consider a car loan and try approach. Get a car loan with no pre-payment penalty, put 25-40% down, and then pay off the loan in 6 or 7 payments. Having six months of payment history and then a paid in full will really look good on your credit file. You don’t want to pay off the loan right away, as that might negate it’s value to the credit building process.

Real estate is the final installment loan you may want to consider, but there are lots of expats (and U.S. citizens) with great credit scores without getting real estate. Remember, a third of US households are renters and over half the population has a good credit score. Not all great scores are home owners.

I realize that this takes some discipline, but a credit score is a part of participating in the US economic consumer experience. So, you might has well have a great one. Happy credit building.