Doing Business Internationally? Your Credit Score Will Follow You

Establishing a legal presence internationally is essential to maintain compliance with tax laws, but it doesn't necessarily give you a clean slate when it comes to borrowing money.

Despite independent credit systems, lenders around the world can obtain a copy of your credit history to aid them in making a final decision. It's not possible to inflate your score, either. Credit rating agencies, especially those in the EU, are bound by strict regulations designed to protect the public against fraud.

Your creditworthiness follows you

As long as your credit history is accessible to all, your creditworthiness will follow you wherever you go. International lenders will scrutinize you closely, looking at your salary, family situation, debts, and residence status, among other factors.

Although a bad credit history back home might get your applications rejected, a perfect credit score won't guarantee you a loan. In fact, in many cases, a great credit score only serves to prevent an automatic rejection. In a foreign country, you've got to start with a minimal line of credit and earn your ability to obtain a higher limit.

If you don't have a pressing need to establish credit in a foreign country, you might want to consider other options because the process isn't easy.

For example, it's possible for an American citizen to establish credit in the UK, but it takes some work. James Jones from Experian told The Guardian that sometimes Experian will accept forms of documentation that prove a person's name and address. They'll make a note with those details visible to lenders to help verify the person's identity. Jones also said if you're in that situation, it's best to open a bank account with an institution that has a presence in the U.S. and the UK. That bank might be able to vouch for you if you've been a customer in the U.S.

Apply for international loans sparingly

Each time a lender pulls a hard inquiry, your credit score will likely be affected. Individual circumstances may vary, but many people end up losing several points for too many inquiries.

Credit experts from RISE explain that agencies know consumers often submit multiple applications to get the best terms, so they consider all inquiries for the same type of loan within a specific time period to be one hard inquiry. Generally, the time period is between 14-45 days.

It's harder to get approved by an international lender, so be selective if you're going to apply for international loans.

Some countries have credit systems with precision ratings

Depending on the country in which you established your credit history, your report could reveal enough details to make international lenders think twice.

Although most of the world has adopted some kind of credit system, credit scores are arbitrarily calculated; there is no international standard. Some countries calculate credit scores similarly, but paint a clearer picture of creditworthiness than others.

For instance, Canada's credit scoring system runs from 300 to 900 while the U.S. system ranges from 300 to 850. Canada has only two major credit reporting bureaus – TransUnion and Equifax – while the U.S. uses those plus Experian. The biggest difference is Canada's scoring system makes it easier to assess a person's creditworthiness at a glance.

NerdWallet explains that Canada's credit rating system assigns each person a number from 1-9. A "1" means they pay their bills within 30 days of the due date, a "9" means they don't pay their bills at all, and a "0" means the account is too new to provide a clear picture of payment habits. They also assign the letter "I," "O," or "R" to each account to indicate what kind of credit a person has. An "I" represents instalment loans, an "O" represents an open credit account, and an "R" represents revolving credit.

The letters and numbers are combined to report your loan type and payment history. For instance, if a Canadian has a revolving credit account and makes payments on time, their rating would be R1. That's far more specific than a three-digit number.

Be prepared for adversity with international credit

You've got no control over how international lenders interpret your credit report. If they see an old debt you haven't paid on in years, even if that debt is no longer legal, they still might consider that a red flag. Be prepared for rejection, and when you do get approved for a loan, be grateful, even when it's a small amount.