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Moving Abroad Guide

Moving Abroad Guide >

Expat Topics

Credit And Debt


 

Establishing a credit rating when moving to another country is important if you wish to apply for a credit card, loan, mortgage or other form of credit. Your credit rating determines how much you can borrow and the rates of interest that you will have to pay.

Managing debt is another important issue, whether your debt is from your country of origin or in your new country. Ignoring debt is never wise - take expert advice and deal with the situation.

Establishing a Credit Rating

Every country has their own procedure to follow in order to establish a credit rating and it may even that credit facilities such as loans, mortgages and credit cards are not actually available to expats in your destination country. Always check in advance if you think you might need any of these facilities when you arrive.

You will need to register with the local authorities when you arrive to pay any taxes or social security contributions that you may be liable for. All countries have a system of giving out a social security number or its equivalent and this is often the first step in establishing a credit rating. A person who is not officially a resident in the country or who does not work will not be able to obtain any credit.

Once you have your social security number you should then be able to open a bank account - the next step in establishing a credit rating. A solid history with the bank will make it easier to apply for a credit card from them. When you first open a bank account the transactions you can carry out at first may be limited. For example, in the United States for the first 90 days of having a bank account it is blocked with a red flag. This is normal and is a security measure to filter out those people who only want the account to cash or write a bad cheque.

Other countries will have their own bank account security measures; some may make you wait a month or more before clearing a foreign cheque for example. This means those receiving an income (like a pension cheque) from their country of origin will not be able to access their funds until after the required waiting period. Opening a bank account may also mean that you have to make a minimum deposit.

Some banks may require you to open a savings account and deposit the same amount of money into it as the level of credit that you are applying for. This account can then be blocked for a set period of time, usually a year, while you prove that you are trustworthy. At the end of this period you can have the savings account unblocked and the funds released.

It may be that when you arrive you will only be able to obtain a credit card with a higher rate of interest than you would like but this may just be a temporary measure. If you use your credit card for small purchases and pay off the balance each month your credit rating will grow and applying for further credit should be easier, though using more than 50% of the credit balance each month may have you classed as ‘over extended’. Consider asking for a card with a low limit so you will not be tempted to overspend.

Following tips like these will ensure that you build a good reputation with banks and other credit lending institutions and they are more likely to lend you funds in the future.

There are a number of advantages – in addition to building a credit rating – to having a local credit card when you are an expat, even if you would prefer to use a card from your home country. Should you wish to order something over the internet, for example. if you are using a credit card issued in your home country, even if the billing address has been changed to your new home, the transaction may be declined. A credit card is also a good source of emergency funds so it may be worthwhile applying for a card even if you do not intend to use it on a regular basis.


Managing Debt at Home

Some expats believe that they can escape debt problems by moving abroad. However, steps are being taken to prevent people from just abandoning their debts and disappearing.

Countries are establishing reciprocal agreements with each other in order to be able to pursue those who have left their debts behind. This means that if a court judgement is issued against a person with debts in one country, when they move to another their creditors can use the legal system of the new country to enforce the judgment and try to recover the funds. If there is no agreement with the new country of residence then the creditor is entitled to try to sell the debt to a collection agency in the new country which can then use local legislation to pursue those that owe.

Some people believe that they cannot be traced when they move abroad. This is not true, although in some countries it may be more difficult than in others. There are a number of options open to the creditor including visiting last known addresses and questioning acquaintances. Creditors may also have offices or contacts in the new country to help them track a person down.

However, it must be said that some people do actually move overseas and escape their debts. Under UK law a creditor has just six years from the last time the debt was acknowledged by the person concerned to recover the monies. Acknowledgement can be in the form of a payment, a record of a telephone call or letter and the six years begins at that point. However, if the creditor has taken some form of legal action in the form of a court judgement, then the debt exists forever and the person who owes the money could be made to pay at any time. This means that even if you have been living your new life abroad for many years somebody could still come along at a later date and attempt to recover the debt.

It is better to deal with the issue of debt instead of ignoring it. There are a number of debt advice agencies in most countries that can help you to manage debt and arrange suitable repayments. It may be tempting to use a company which advertise that they can reduce your debt to almost nothing, but these companies do charge fees and you can achieve similar results with the help of a free debt advisory service.

Options for repaying debt include offering the creditor a small, fixed amount each month. Many will allow you to do this as it is better for them to receive a little money than nothing at all and if you are using the services of a debt advisory agency then they may be more inclined to allow you to do this. Filing for bankruptcy should be a last resort as this will affect your ability to obtain future credit, even if you choose to move abroad, as you may have to provide proof from your home country that you have a good credit rating in order to obtain credit elsewhere.

You should also be aware that if you have debts that are unpaid in your home country and then choose to return then you will find it very difficult to obtain credit again and this will have an effect if you try to apply for a mortgage or credit card.


Managing Debt Abroad

If you do obtain credit facilities in your new country, it is not advisable to use them to run up significant levels of debt. As an expat it can take several years to establish a good credit rating abroad and this can then be ruined by non-payments. If you do need to use a credit card try to use it for relatively small amounts which can be paid off each month. Paying the full balance should mean that little or no interest is charged to your account. Making only minimum payments, on the other hand, is likely to greatly increase the time taken to pay of the debt and substantially increase the amount repaid due to interest charges.

There is a growing trend in some countries with high numbers of expat workers for them to return home not having paid their bills. This is increasingly common in some Middle Eastern countries due to sudden changes within workforces and regulations requiring workers who lose their jobs to leave the country within a certain time period. It may be that some people just do not have the chance to pay what they owe, but abandoning debt often causes more problems than it solves. For example, if you decide that you would like to return one day you may find that visas are refused due to the unpaid debt. If you do find yourself in a country without work and have to leave it is better to negotiate a repayment plan rather than ignoring the debt.

When applying for a large loan such as a mortgage it is often best not to stretch yourself too far. The mortgage lender will advise how much you can borrow based on income and outgoings, but expats moving to take up the offer of a new job are in an inherently risky situation. Buying a smaller, cheaper property gives you some room to manouver should the job fall through and you are forced to look for alternative employment in a hurry, possibly with a lower salary.

As soon as debt becomes unmanageable it is a good idea to get help. Ignoring the problem won’t make it go away., in fact it just makes things worse as interest charges and late payment fees can add up very quickly. Getting help in the beginning means that there is less chance of creditors filing bad debt claims against you, so even if you struggle to make payments your credit rating will not be adversely affected.

Simple and careful planning will help you through the pitfalls of the credit and debt cycle, but the main thing to remember is to not borrow unnecessarily, and never more than you can afford to repay.

 
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Expat Health Insurance Partners


Aetna International

Our award-winning expatriate business provides health benefits to more than 650,000 members worldwide. In addition, we have helped develop world-class health systems for governments, corporations and providers around the world. We want to be the global leader in delivering world-class health solutions, making quality health care more accessible and empowering people to live healthier lives.

Bupa Global

At Bupa we have been helping individuals and families live longer, healthier, happier lives for over 60 years. We are trusted by expats in 190 different countries and have links with healthcare organisations throughout the world. So whether you're moving abroad for a change of career or a change of scene, with our international private health insurance you will always be in safe hands.

Cigna International

Cigna has worked in international health insurance for more than 30 years. Today, Cigna has over 71 million customer relationships around the world. Looking after them is an international workforce of 31,000 people, plus a network of over 1 million hospitals, physicians, clinics and health and wellness specialists worldwide, meaning you have easy access to treatment.