When you’re living abroad as a digital nomad, it’s easy to forget about financial matters back at home. You’re handling travel plans, adjusting to a new culture, and maybe even learning a language — so your credit score probably isn’t at the top of your mind.
But if you’re planning to return to the U.S. someday, your credit score could have a big impact on your life. Whether you want to take out a mortgage, borrow a student loan, or in some cases, rent an apartment, you’ll need a decent credit score to achieve any of these goals.
So what can you do to ensure you’re not accidentally damaging your credit score while you jetset from country to country? Learning what affects a credit score negatively is a good start.
What affects a credit score negatively
Your credit score is a measure of your financial health and reliability, at least in the eyes of lenders. A low credit score could indicate you’re a risky candidate for a loan, whereas a strong score suggests you manage your money well and repay debts on time and in full.
Although your credit score won’t affect you much in other countries, it does come into play in the U.S. — for example, it matters if you want to open a travel rewards credit card or refinance your student loans. By knowing what factors impact a credit score, you can avoid accidentally dragging it down.
So what affects a credit score negatively? Here are some of the main culprits.
- Carrying a lot of debt
- Missing payments on your loans or credit cards
- Having a short or non-existent credit history
- Not having a mix of credit (e.g., different credit cards or loan types)
- Opening lots of new accounts at the same time (and allowing too many hard credit inquiries)
Given this, what are some common mistakes people make while traveling that could harm their credit scores? Here are three main ones to avoid.
1. Overspending on your travels and racking up credit card debt
From flights to Airbnbs to restaurants, the costs of traveling can add up fast. And if you don’t keep an eye on your budget, you could end up spending more than you can afford.
If you put expenses on credit cards, you could end up with a balance that’s too high to pay off. Failing to pay off your balance in full on a monthly basis means it will start accruing interest at a rate that will make your eyes water.
Not only could you get further and further into the hole, but this debt could bring down your credit score. Although there are a variety of credit scores out there (FICO and Vantage 3.0 are two of the most common ones), most consider the same criteria, which include,
- The amount of money you owe
- Your payment history
Carrying a lot of credit card debt could drag down your score, as could missing monthly payments. So to protect your credit score, try to keep up with bills and pay down your debts as quickly as possible. If you can afford it, set up automatic payments on your accounts so you never miss a payment.
Tracking your income and expenses will also prevent you from overspending. Budget-tracking apps like Mint or YNAB could be helpful, or you could just write down your spending on a spreadsheet. Come up with a system that works for you, so you don’t end up spending too much while you travel and damaging your credit score as a result.
2. Avoiding credit cards altogether
When people hear about the sky-high interest rates on credit cards, some choose to avoid credit cards altogether. After all, it’s tough to go into debt if you’re only dealing with cash.
But the length of your credit history, mix of credit types, and new credit are all important parts of your credit score. Even if you have no debt, you’d have a tough time increasing your credit score without any credit to your name.
Opening up a few credit cards can actually boost your score, as long as you don’t open too many at once and are careful to pay them off. By paying your balance in full every month, you’ll never have to pay a cent in interest.
What’s more, some travel rewards credit cards offer great perks, such as points or cash back, trip protection benefits, car rental insurance, and even access to airport lounges.
If you’re worried you’ll overspend, you could instead consider a secured credit card, which has built-in spending limits and can be a good starter card for people without a strong credit history. With a secured card, you can’t spend past your limits but will still build your score over time.
Think about your habits and spending triggers, and consider whether you can use a credit card strategically to build up your credit score into the good or even excellent range.
3. Forgetting to pay your student loans or other debt
Your history of debt repayment has a big impact on your credit score, so missing payments could cause long-term damage.
If you’ve got student loans, remember to keep paying them every month, even when you’re abroad. Set up autopay so you don’t miss a payment, and consider changing your repayment plan if your monthly bills are too burdensome.
For example, an income-driven plan could lower your monthly payments if you’re having trouble paying back your loan. Alternatively, you could throw extra payments at your loans if you can afford it to pay down your debt faster (and boost your credit score as a result).
It might be tempting to forget about your debt back at home, but missing payments could cause your account to go into delinquency and then default. And those red marks drag down your credit score for seven years or more, so Future You will probably regret the decision to ignore your loans.
Protect your personal finances from anywhere in the world
As long as you pay off your loans, avoid credit card debt, and use credit cards to your advantage, you can avoid the common mistakes that drag down a credit score.
And you don’t have to obsess about your personal finances to manage them well, either. Just check in with your spending every once in a while, and sign up for a free service like Credit Karma to monitor your score from time to time.
By putting these systems in place, you can let everything run on autopilot while you enjoy your travels, confident you’re not accidentally hurting your finances as you travel the world.
With the right moves, you might even discover that traveling helps you save more money than if you’d stayed home.