How to Improve Your Credit While Living Abroad

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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

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