Credit is the most underrated money word out there. Not many people realize the importance of a good credit score, but it has a huge impact on the 2 big purchases in any one’s life: a car and a mortgage.
(If you don’t know what your credit score is, click here for a briefing)
Part of the problem for young people and their credit is that they just don’t have enough credit. Many of us only have a few years with a loan or a credit card under our belts, and thus, low credit scores because our credit history is low.
If you don’t have any credit card debt, your credit score should start picking up around your mid-twenties, as you start to have more experience with loans and add on years to your credit history.
But what about people who are abroad? How do they improve their credit while they’re abroad?
Well, since it’s difficult to get a loan as a foreigner in most countries, the ability to raise your credit score is tied back to America. Meaning, what you do in America with your credit will affect your credit score which you’ll use to buy a car or house in the next 10-20 years.
There are just a few, simple ways to improve your credit while abroad.
Pay off any and all credit card debt
A lot of people carry some credit card debt from month to month. This hurts your credit score because you’re using card utilization, which makes up 30% of your score, is probably high.
If you’re abroad, you probably have some sort of employment, so start actively paying off your credit card debt. Not only will it improve your credit score, but it’ll save you money in the long run on interest tied to your credit card.
Rotate small purchases on credit cards
Keeping cards active is important in today’s credit crunch climate. Companies occasionally shut down inactive cards, but you want your card to stay open so your credit history grows.
To keep your history going, rotate any purchases you may have at home with your credit cards. For example, I ordered a camera battery from Amazon last week and that $21 charge on my credit card is good enough to keep it active and thriving.
If you don’t charge anything back home while you’re abroad, consider some small charitable donations with your credit cards. This kills 2 birds with 1 stone: keeps your credit card active, and makes you feel good about donating.
I have 3 credit cards that I rotate purchases on. Make sure you don’t use the same card with every purchase because before you know it, you could have 9 months without any purchases on a card. Don’t give the companies any reason to shut down your card because you’ll lose the history you’ve built on it.
Continue (or start) paying off student loans every month
An important part of a lot of twenty-somethings credit scores are student loans. If you have them they show you are credit worthy, and if you pay them off on time every month, they show you’re a trusted lender.
Continue paying them off every month and do whatever you can to never miss a payment. One late or missed payment will show up on your credit score and cause it to drop.
A $30 late payment may not seem like a big deal, but it could cause your score to drop from a 700 to a 660. This could cause a mortgage rate to rise from 6% to 6.3%. Once again, doesn’t seem like a big deal but on a 30 year mortgage for a $250,000 house it’ll end up costing you $17,478 in extra payments.
Now can you see why credit is the personal finance underdog?
Have you had experience living abroad and dealing with credit? Share your story in the comments!
Photo: B. Sandman
————————————————————-
Subscribe 
Follow us on Twitter 
Get email updates
Holy smokes! That last part about the affect a $30 late payment could have is a real eye opener! -Gail
.-= Wide Island View´s last blog ..Spring Photo Contest 2010 – With Prizes! =-.
[Reply]
Austin Reply:
April 20th, 2010 at 5:21 pm
Yeah, don’t mess around with your credit. Nothing but bad things will follow so make sure those credit cards are happy.
[Reply]
I don’t know how many parents would be willing to trust having their children as a signer on their credit card accounts but that would be a way to help raise the credit rating of a person just getting started. My husband had no credit rating to speak of only two years ago, and I had him using one of my credit cards – it was my account – he was a signer, and his credit score really shot up in a year. It happened to my sister also, she got one of those dental credit card accounts for $1000 and I co-signed for her and she did a good job paying it off, and her credit score went up because of mine. Anyway, just something I’ve thought about to help our son build his credit score when that time comes.
[Reply]
Austin Reply:
April 25th, 2010 at 6:27 pm
That’s a great idea. It would have to be a judgment call by the parents if they could trust their child or not, but it could really help get the child’s credit headed in the right direction.
When did you get your first credit card?
[Reply]
I still have enough bills in the states where I can use Bank of America’s online billpay to keep my credit accounts “fresh”. BoA’s billpay is great — for vendors that are registered electronically to them, you can pay either from your checking or your credit card. (Vendors only since they don’t want you paying yourself with your CC to bypass their cash advance fees.) The terms are *almost* like swiping your card at a merchant except you don’t get rewards points and you don’t get the CC purchase protection (often not needed due to the nature of the expenses like insurance premiums).
The speed for electronically-registered vendors is also next day. When my parents forget to pay a bill and the due date is coming soon, I can use billpay+CC to handle it asap without needing to transfer enough money from savings/MMFs. All-in-all, BoA really works out good for somebody who lives overseas.
[Reply]
Austin Reply:
April 25th, 2010 at 12:09 pm
Great suggestion. ING’s billpay is pretty good too. I’m not sure on the specifics of the days, but it’s simple and does the job.
I can’t wait until good billpay becomes standard for every bank.
[Reply]
I’m sorry, but for you to be talking in such an authoritative way about credit, you should really ensure that you minimuse your typos and grammatical errors. Also, you need to check your facts.
[Reply]