Suresh was excited. He had just been told his company was moving him to the US on a 3 year assignment. It seemed like the perfect opportunity to leave behind his financial problems in India and start with a fresh slate in America. He had taken a personal loan to help with his father’s unexpected hospitalization and surgery, and he was late on his credit card payments. Suresh thought that if he closed his bank accounts and left the country, the banks would not be able to track him, and his loans and card payments would be forgotten after some time.
He could not be more wrong. Three years later, Suresh returned to India and decided to apply for a credit card. He found to his shock that his application was rejected on the basis of his delinquent credit history from three years ago. Banks rejected his auto loan application outright because of his previous record. Prospective employees or landlords could also have potentially accessed his credit report and decided that he was untrustworthy with his payments. Suresh might have saved some money by skipping on his loans or credit card payments a few years ago, but he has permanently damaged his credit in India and is effectively shut out of the Indian banking system.
Five 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 if you do not default outright, even one late payment will be recorded on our credit history and negatively impact your score. It is important to keep this negative scoring to the minimum in order to avoid severe problems when you 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 them over a period of time. Closing several accounts at once could have a negative effect on your credit score. When you suddenly eliminate all credit lines, you will be left with no outstanding credits and you will not have the ability to demonstrate prompt repayment behavior in order to maintain your credit score.
4. Retain your Indian credit card and make occasional purchases on the card so that your credit is history remains active. Even just 1-2 payments a year is adequate to maintain your credit record. This way you will have a longer credit history which automatically improves 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 move back to India. It may be years before you have a long enough history to be eligible for a loan.
5. Inform the credit bureaus (CIBIL™, Equifax, Experian and CRIF High Mark) 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 could increase the chances of fraudulently applying 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.
While moving to another country can be tempting if you have outstanding loans and credit cards, or have a poor credit score, please remember that when you return to India, the unpaid debt is likely to have further negatively impacted your credit score, and it could take you much longer to become credit healthy once again.