MSI Blog

The Credit Paradox; Expats and US Credit History

October 26, 2011 by Paul Lambert

Credit is entwined in the American culture like no other, with far reaching applications that govern everyday life. The ability to tap into available credit, and maintain a high credit score, requires due respect and understanding, both amongst American’s and, for the context of this article, expatriates. Misunderstanding can lead to difficulty in adjusting to life in the US.

The Credit Score

The three major credit bureaus, Experian, Equifax and TransUnion, are supplied with lender information on a monthly basis¹. The best known credit score model in the US, the FICO score, is then calculated statistically, with information from the consumer’s credit files, provided by the credit bureaus. The credit scores are designed to measure the risk of a payment default by taking into account various factors in an individual’s financial history;

1. Payment History: Timely, or untimely, payment directly correlates to an increase or decrease in a FICO score.
2. Credit Utilization: The ratio of current debt (i.e. credit card balances) to the total available credit limit.
3. Credit History: A positive credit profile can have a constructive impact on a FICO score.
4. Type of Credit: An individual can benefit from having a history of managing different types of credit.
5. Recent Credit Searches: Credit inquires, which occur when consumers are seeking new credit lines, can have a negative impact.

A low credit score will not only impact the ability to obtain finance, but also increase lender risk resulting in higher interest rates.

Herein lies the problem; US bound transferees will not have an established credit history for the credit bureau’s to assess, which, given the current economic climate, labels them as high risk consumers². Such a label will not only impact the finance of big ticket items, such as, a new home, car, household appliances but also the ability to establish utilities (cable television, mobile phone contracts, gas, electricity), apartment rental, and insurance. Even with substantial liquidity, an expat will not escape the impact posed by not having a US based credit history. The impact can be lessened with understanding and preparation.

Understanding is nothing without preparation. The level to which an assignee prepares will not negate the affect, but will determine the level of impact, ultimately defining the ability to settle quickly, a fact often required by employers looking for new arrivals to hit the ground running. A number of interesting tips read as follow;

1. Social Security Number:  Without a social security number – an assignee does not exist.  An application can be made roughly ten days post arrival on US soil.  The delay creates time for the necessary paperwork to filter through the system, allowing for an application to be made (the number is typically received 7 – 14 business days post application).  Further information can be found via the social security administration website, including service locations and application details. (http://www.ssa.gov).
2. Bank Account: Open a US bank account as soon as possible.  Each bank will approach expatriate customers differently, with differences in application procedures and services.  Given the lack of any US based financial records/history, the banks may require more information upfront in order to open an account, and may also restrict the level of service available until the individual has had a chance to mitigate any risk.  Typically, the banks will ‘red flag’ an expatriate account for a minimum of 90 days, where account activities are monitored.  It is important to deal with a bank that provides services to expatriates to the US, and a provider who can, if needed, pull a home country credit report.
3. Credit Card:  After arrival, expats are strongly advised not to apply for every credit opportunity.  There is no quick fix, with assignee’s requiring at least a year of consistent credit management and timely payment in order establish a score, which must then be nurtured to maturity.  A common approach by banks is to provide expatriates with a secured card, which acts as a pre-paid credit card with which one can start to build credit history³.  An alternative would be a store card, which offers assignee’s an opportunity to purchase on credit, the payment of which will help establish a credit score.  By making small store card payments, and paying the balance off each month, a score is soon established.
4. Utilities:  It is important to place any utilities in the assignee’s name.  Utility companies will perform credit checks; as a result an expatriate may find that there are upfront fees in order to establish utilities, including additional cable set up fees, and mobile telephone contract fees.  However, it is important to keep these utilities in the assignee’s name, and not, for instance, in the company’s name.  In the assignee’s name, the individual will be able to establish an excellent payment history.  It is important to mention that only credit will build a credit score, i.e. you have to borrow money and pay it back to establish a score.  Paying rent, utility bills will not build your score, however, failing to pay, or paying late will impact a score significantly.
5. Car Lease/Finance: The issue of securing a car by way of a finance or lease agreement is a further topic for discussion, as one that Expatriates find particularly difficult in the US⁴. Any lease or finance agreement should, however, be in the assignee’s name to provide further opportunities to nurture a faultless payment history, and provide evidence of managing different types of credit.  An important note is that expatriate credit is not only difficult to secure, but there are often inflated interest rates and premiums given the increased lender risk.  In limited circumstances, there are opportunities to renegotiate interest rates once a good credit history is established.

In conclusion, it is safe to say that the lack of US Credit History poses one of the great challenges faced by new US residents.  Given the entwined nature of credit in US Society, the lack of credit history will indiscriminately impact every new arrival, regardless of position or liquidity.  The lack of a ‘quick fix’ requires patience and understanding.  In writing this article, I speak of my own experience as an unassisted expatriate arriving in the US and have dealt with all of the issues faced by having no credit history.  My advice, be prepared and patient.  

The US operations team is well versed in the issues faced by assignee’s entering the US.  If you are an assignee experiencing difficulty, or a client looking for some advice, please do not hesitate to contact MSI.

1. Credit Bureaus in the US tend to lag a couple of months in updating information.
2. It is important to make the distinction that no credit history is better than bad credit history.
3. Please speak to your MSI International Assignment Manager regarding your banking requirement. The example is based on an unassisted case.
4. Your International Assignment Manager is available to discuss and meet your car requirements in the US.