Going overseas for a short term assignment is an increasingly common phenomenon and it is important to be aware of the long-term credit implications of such a move.
Going overseas for a short term assignment is an increasingly common phenomenon and it is important to be aware of the long-term credit implications of such a move. Take the case of Suresh (name changed) who had been told his company was moving him to the US on a 3 year assignment. It seemed like the perfect opportunity for him to leave behind his financial problems in India and start with a clean slate in America. He had taken a personal loan to help with his father’s unexpected hospitalization and surgery, and was also late on his credit card payments. Suresh thought that if he closed his bank accounts and left the country, his loans and card payments would be forgotten after some time.
He could not have been more wrong. Three years later, Suresh returned to India and decided to apply for a fresh credit card. He found to his shock that his application was rejected by multiple companies on the basis of his repayment history from three years ago. When he tried to buy a car, his auto loan application was rejected outright because of his defaults that had caused his credit score to drop over 3 years. Suresh might have saved some money by skipping on his loans and credit card payments, but he had damaged his credit rating in India, which will now take a long time to overcome.
It is important to remember that your credit history is a continuing process and records your repayment behaviour over years. Here are 5 things to keep in mind when moving overseas:
1. Pay off all outstanding loans and credit card payments before you move overseas. The importance of this cannot be stressed enough. Defaulting on loans can have serious consequences in the future when you apply for loans. Even one late payment will be recorded on your credit history and negatively impact your score on your return to India.
2. Keep at least one account in India open so you can make EMI payments from this account in a timely and easy fashion. It is far more difficult and expensive to make these repayments from an overseas account. It is important to note that you must change your saving or current account in India to an NRI/NRO account, as it is not legal to have a regular savings account if you are resident overseas.
3. While closing your accounts, make sure to do so over a period of time. Closing all your loan accounts at the same time could negatively affect your credit score. Without active loans or credit card repayments recorded in your credit report, your credit score will gradually drop over a period of time.
4. Retain your Indian credit card and make occasional purchases on the card so that your credit history remains active. This way you will have a longer credit history which will automatically improve your credit score. When you surrender all your credit cards, you are needlessly cutting short your record within the Indian banking system and giving up your history of good credit. You will then have to start rebuilding your credit history from scratch when you return to India. It may be years before you have a long enough history again to be eligible for a loan.
5. Inform the credit bureaus (CIBIL, Equifax and Experian) that you are moving overseas so that they can make a note. This helps avoid identity theft in case criminals detect that you have an inactive account and apply for loans in your name with fake IDs. Similarly, request for an occasional credit report so you can check for fraudulent activity and immediately address it.
These are simple tips to follow and will ensure a much easier financial transition when you return to India.
The author, Ranjit Punja, is CEO & Co-Founder, Credit Mantri