American citizens who spend time living abroad may face some nasty financial surprises when they return home.
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Even if they managed their spending responsibly while away, a lack of U.S. credit activity or a U.S. address can leave them unable to obtain new credit cards or loans. It can make it tough to open a bank account. It can even leave them vulnerable to identity theft.
"The big mistake people make is not taking care of their finances and credit," says Lisa R. Mitchell, an American and former banker who lives in Shanghai, teaches leadership for Berlitz, and writes a blog about expatriate financial issues.
Mitchell's book, "Global Money Matters: A Guide to Making Smart Money Choices While Living a Global Lifestyle," will be out in the fall. "They're moving, they have to put their children in school, they may have to find a job or housing. People rarely think about finance -- they think because their bank is a big global bank they don't need to worry about it. Then they return and realize they haven't done a lot of things they should have."
It doesn't have to be that way. Keeping your credit healthy while you live outside the United States does require a few extra steps, but none of them are difficult or terribly time consuming.
Here's a look at 5 mistakes to avoid before, during and after living abroad:
Before you leave:
1. Canceling credit cards and closing bank accounts.
"Whenever you close a healthy credit card account, you're damaging your credit score," says Bruce McClary, director of media relations, ClearPoint Credit Counseling Solutions. McClary spent many years counseling people with credit problems, many of them returning expats. "The more you close at a single time, the more damage it does and the longer it takes to heal that damage. It can really tank your credit score in a big way."
Does that mean you should keep every credit card account open while you're away? Not necessarily. "Individual store credit cards probably aren't worth keeping unless you plan to do a lot of online shopping with that retailer," says Becky Walzak, president of rjbWalzak Consulting, which helps banks make lending decisions. Beyond that, she says, "Some people have five to 20 credit cards. You may not really need all those cards."
If you do decide to eliminate some of your credit cards before you leave, consider canceling them one by one over time, rather than all at once. For those you retain, make sure to contact the company to let them know you will be living abroad and where, otherwise your overseas purchase may raise suspicions of identity theft.
While you're making phone calls, it's a good idea as well to contact the three major U.S. credit bureaus (Equifax, Experian and TransUnion) to let them know you'll be living abroad. They can put a note to this effect on your account, which will automatically show up if someone applies for credit in your name in the United States, and may prevent identity theft. You might also consider signing up for a service that will alert you every time your credit report is requested, which will further help to provide an early warning for identity theft. Plus, you should obtain your free annual credit report from at least one of the bureaus as well to check for fraud, since you may not be able to do so from another country.
Closing your U.S. bank accounts is a bad idea for the same reasons that canceling credit cards are. "It's becoming very hard for U.S. citizens to open bank accounts in foreign countries," Mitchell says. The reason is the increased reporting the U.S. government requires. "It's also becoming a little difficult for someone returning to the U.S. to re-open a bank account," Mitchell says.
And having a U.S. bank account can be handy. An online payment from your U.S. bank is the easiest way to pay your U.S. credit card statements. Also, you may prefer to receive at least some of your income in U.S. dollars. Shawn Griffin, vice president at Darling International, spent years with his family living and working in foreign countries, including Jamaica. "We negotiated a pay rate in U.S. dollars with a per diem in Jamaican currency," he says. "We kept our U.S. bank account because there is a significant cost associated with exchanging currencies, and particularly in Third World countries, there is a risk that local funds will be worth considerably less by the time you get them converted to dollars, even if the exchange takes place within a week."
2. Failing to inquire about banking differences.
Whatever you do, don't assume that banking will be the same for you abroad as it is here. You may need to make adjustments -- including changing the password for your ATM card. "Moving from the United States to a foreign country you may have to change your ATM PIN from a four-digit number to a six-digit number, though I have seen this changing in a few places," Mitchell says. If you've memorized your code by letters instead of numbers, she adds, you should memorize the numbers as well, especially if you're heading somewhere (such as China) that doesn't use the Roman alphabet.
And, while you may be accustomed to moving funds among your accounts at will, there may be restrictions on moving them between countries. "Many countries are concerned about the flight of capital, especially since 2008," Mitchell says. "Some countries have currency controls and will be concerned about how much foreign currency you're depositing or exchanging. China has a daily exchange limit and if I want to exchange above that, I have to bring my employment contract and my paycheck stub."
You should also inquire about differences when applying for a credit card in a foreign country, something many expatriates do so as to avoid the fees U.S. credit cards apply to foreign transactions. While this can save you money, it's important to know how the rules for a foreign credit card may be different from those you're accustomed to. For instance, in the United Arab Emirates, defaulting on your credit card can have dire consequences, including being prevented from leaving the country.
While living abroad:
3. Ignoring your U.S. credit cards or bank accounts.
Having a credit card that you never use isn't much better than not having one: After a few months, banks are likely to flag your account as "non-active." "Just go out to dinner once a month and use your credit card," Walzak advises.
Keeping your credit card active and regularly checking your balance can also help keep you secure. "Unused open credit card accounts are magnets for identity thieves," McClary says. It works like this: Miscreants order your credit report on some pretext and notice that you have a card that hasn't been used in months. They'll guess that you're probably not keeping an eye on that account. "If they are then able to contact the credit card company and with a little ID fakery get them to do a change of address -- bingo, they've got your card with your unused credit and all the time in the world to run up a balance. Once that starts taking place, if it goes into default, it can be very hard to undo the damage."
Keep a close watch on your U.S. bank accounts, too. "Let's say you bounce a check by accident because you're out of the country," Mitchell says. "You could wind up on Chex Systems [a reporting tool banks use]. That can make it harder for you to open an account, and banks are getting more and more stringent."
4. Moving everything to your overseas address.
Whatever you do, it's important to retain an address in the United States, experts advise. Without one, it may be difficult to maintain your U.S. bank account and to re-establish credit when you return home. Mitchell advises using a mailing service that will provide you with a U.S. address and provide you online access to scans of your mail. "Even a P.O. box is not good enough anymore -- banks are cracking down on them," Mitchell says, meaning using one to maintain the illusion that you're still living in the U.S. isn't effective.
A second option is to ask a trusted friend or relative in the U.S. to receive your mail. Many expatriates, especially those living in places where phone or Internet access is unreliable, also give a power of attorney to someone back home. This can be an effective way of dealing with your finances and can help prevent late fees and other problems if you can't easily monitor your accounts yourself. But be very careful who you choose for this responsibility: It should be someone you both trust implicitly and can rely on to handle money the same way you would yourself.
"I've seen many of those situations," McClary says. "Sometimes it worked great. Other times, the person who got power of attorney wasn't good at managing money. You have to have a strong level of trust and some way to keep track of what that person is doing with your accounts so that you can intervene quickly if necessary." With Internet access widely available, he adds, in many places it might make more sense to simply manage your accounts yourself.
When you return:
5. Not trying to fix your credit.
What if it's already too late for the advice in this article? You've lived abroad without maintaining credit activity back home, and now that you've returned you're having trouble getting a loan? Don't assume that all is lost.
"What kind of credit reporting do they have in the country where you were living?" Walzak asks. Though few countries have as sophisticated a credit system as the United States, there may be a credit bureau or its equivalent that can provide a report at your request. If not, you may still be able to demonstrate your creditworthiness by showing that you owned property and paid a mortgage (if you did) while you were overseas, or by demonstrating that you regularly paid your rent and utilities.
"You may be able to get verification of your mortgage or rent payments -- the lender just needs to know where to send it, and if it needs to be translated into a foreign language," Walzak says. "If you had a good relationship with a bank or lender overseas, ask them to put something in writing or in an email confirming that they would be happy to have you as a customer again if you returned to that country. Any kind of reference showing you paid your bills and have a willingness to pay debt is going to be helpful."
Meantime, it's a good idea to start building up your credit history again, with secured credit cards or even a co-signed loan if necessary. With credit reports used by everyone from prospective landlords to car dealerships, there's a good chance you may need it.