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With more than millions of digital nomads living around the world, jumping ship to reside in destinations like the Caribbean, Europe, Southeast Asia or even hopping around various cities in the USA while working remotely is becoming increasingly more popular. And being a digital nomad isn’t the same as broke backpacking. On average, digital nomads are 32 years old and earn $119,423 annually, according to Nomad List.
But, digital nomads may not want to live the nomadic lifestyle forever. And once they decide to settle, digital nomads might face issues like not being able to buy a car or home if they haven’t yet built credit while on the go.
Having no credit can be just as detrimental as having bad credit, which is why digital nomads can and should work on building credit, even with no immediate plans to return to the USA or settle down. Forming a financial base is essential for the future — and using a line of credit responsibly.
Easy ways to earn credit as a digital nomad
Become an authorized user
For anyone living abroad (or nationally) who hasn’t yet had the chance to get a mortgage or open up credit cards, a reliable way to start building credit is to become an authorized user on a credit card that belongs to a trusted friend or family member.
Being an authorized user allows you to ‘piggyback’ off someone else’s credit, so make sure to choose someone with a good credit history — parents are often the perfect choice. As an authorized user, you’ll have your own card that connects to the primary user’s account and be able to make charges. Then, assuming the primary user pays the bill on time, you’ll start building credit, too.
While this may sound like a dream, remember that in order to build credit, you’ll need to be a responsible user. This means you shouldn’t make charges unapproved by the primary cardholder or charge things you can’t afford. If you or they can’t pay them off, it won’t help you to build credit and may even get you both into debt.
As a digital nomad or frequent traveler, consider becoming an authorized user on a card that offers travel benefits to authorized users, such as the Capital One Venture X, which offers perks like airport lounge access to authorized users without additional fees for the primary cardholder.
Consider a secured card to start
Getting a credit card is an easy way to start building credit, but it’s difficult to get approved for a credit card without credit. An easy fix is getting a secured credit card, which requires the cardholder to pay a security deposit upfront.
As secured cards report to the major credit bureaus, it can help you build the credit you need to then get a regular credit card or a travel rewards card, which is even more useful to digital nomads or anyone that is often on the move.
Like many credit cards geared toward consumers with bad credit, secured cards often have very high APRs (close to 27 percent, in some cases), so it’s important to pay off your bill each month to avoid paying lots of interest. One of our favorites is the Discover it® Secured Credit Card. Although you’ll have to deposit $200 to start, the card has no annual fee, no credit score is required to apply and offers 2 percent cash back at gas stations at restaurants on up to $1,000 combined purchases each quarter, so it’s ideal for nomads that drive often or frequently dine out.
Get a travel rewards credit card
For those that have some credit history or have already taken the aforementioned steps, it’s time for a travel rewards card. As digital nomads travel often, these cards are ways to build credit while also benefitting from perks designed for frequent travelers. The best travel credit cards offer perks that can be especially useful for digital nomads, like lounge access, hotel elite status, free checked bags, global entry fee credits, travel insurance and travel credits.
Airline or hotel co-branded cards are ideal for those loyal to specific brands. But digital nomads often have flexible lifestyles, hopping on a flight or moving to a new city or county without much notice, so a flexible rewards card may work even better. Either way, a growing stash of points and miles earned from a travel rewards card can help digital nomads travel for free. This can be especially helpful for nomads transitioning to a new place or that need to get home in a pinch or during expensive peak times, like the holidays.
Many of the cards with the most travel benefits are the ones that require a higher credit score and come with a higher annual fee, like The Platinum Card® from American Express or the Chase Sapphire Reserve®. But if you have some credit and are looking for a rewards card, a beginner travel rewards card might be the right choice.
One of the best travel rewards cards to consider is the Chase Sapphire Preferred® Card. Although it comes with an annual fee of $95, the card’s hefty point bonuses on various spend categories and the ability to transfer points to a number of airlines and hotels make it a versatile card that’s perfect for digital nomads. Plus, it doesn’t charge foreign transaction fees.
Take out a loan
Another way to build credit is to take out a small personal loan and then pay it back over time. You might not need to take out a loan, but these payments can help you build credit as the lenders report to credit bureaus. Remember, these loans incur fees and interest, so read the fine print and make sure it’s the right choice for you.
Digital nomads that want to build credit should consider a credit builder loan. This non-traditional type of loan specifically helps build credit, as you start by paying fixed monthly payments and then later have access to the lump sum of money. This could be the ideal loan for digital nomads who plan to travel for a specific period of time, say one year, while making the fixed payments, then settle somewhere and access the lump sum for a big purchase, like a car.
Tips and tricks for building and maintaining good credit
Digital nomads, take note of this advice when growing and maintaining your credit score.
Don’t get behind on payments, especially with rewards credit cards
Credit cards can help you build credit, but if you don’t pay them off in a timely manner or you accrue debt, this will negate any rewards you might reap and negatively affect your credit score — and the only thing worse than no credit is bad credit.
Keep credit utilization low
Credit utilization is a significant factor when it comes to credit scores, and it refers to how much of your credit limit you actually use. In most cases, using less than 30 percent of your allotted limit can help keep your credit score healthy and high.
Downgrade instead of closing accounts
Sometimes closing a credit card account, even if you don’t use it, can affect your credit. It’s best to continue building credit by leaving a credit card open but downgrading the card to a no-annual-fee card. This way, your credit score will benefit from having longer credit history and you’ll only use a small portion of your allotted credit limit, but you won’t have to pay any annual fees.
The bottom line
It’s a myth that traveling the world means you have to neglect plans for the future. And whether you want to eventually settle down or not, building credit is essential for a stable financial future. Opening credit cards or taking out loans can benefit nomads during moves and travels by building credit and offering valuable travel perks and benefits, too.