The United States welcomes over 300,000 foreign national assignees every year in managerial, technical and consulting professions. And while their skills, talents, families and belongings all make the trip safely, their credit-worthiness doesn’t travel – and it is costing them and their employers a fortune.
In all it is estimated that the lack of availability of US credit is costing US businesses and their incoming talent over $2.4 billion every year in excess interest charges, foregone tax beaks and compromised productivity. According to a recent survey of global mobility managers and international HR professionals, over half of all respondents claimed that lack of access to US credit facilities impacted assignee morale and productivity “somewhat”, while the remaining 47% indicated that the issue “very much” impacted their employees – a startling level of unanimity.
Cost-conscious employers are increasingly concerned, as they migrate towards allowance-based or lump sum transition management policies requiring much higher levels of self sufficiency from assignees. Despite widespread awareness of the difficulties caused by the scarcity and cost of credit for incoming assignees; one third of employers responding to the survey indicated that they make no provision to assist incoming foreign nationals with financial matters. However, over 60% indicated that they would consider including such assistance in their transition management processes.
For many companies, adding credit migration to existing transition management processes is a logical next step, once an allowance based approach is adopted. Equipping incoming employees with the knowledge to make the early decisions themselves builds the overall integrity of the policies underpinning allowance based international assignee programs.
The biggest single obstacle is the widespread and growing implementation of data protection legislation across the world which prohibits the sharing of personal information internationally. Secondly, different source data, algorithms, and the score ranges used by credit bureaus in different countries means that credit scores do not easily translate across borders. Since the birth of the US credit reporting industry, over 90% of US institutions now use broadly similar methods to determine the level of risk in lending to an applicant. Put simply, they have been using the same system for generations, and aren’t about to change for a few thousand expats needing mortgages, car loans and credit cards. So, in most cases, no credit score means no credit at worst, and prohibitively expensive credit at best.
Costs can be eye watering. According to Informa Research Services those with a FICO score above 700 will pay $245 less per month on a $300,000 mortgage than a borrower with a FICO credit score below 640. On car loans, the difference is even more pronounced, with rates ranging from 4.57% for those scoring above 700, to 16.6% for those scoring below 620 – a difference in cash terms of over $140 per month on a typical $25,000 car loan.
So how do the thousands of arriving assignees who are denied car loans, rejected for local credit cards, and struggle to find a lender willing to fund the purchase of a home break the vicious circle of getting access to reasonably priced credit without a US credit score?
‘There had to be a way,’ says Andrew Cox, the founder of Mycredex, the industry pioneer of credit migration. With seven international moves throughout his corporate career, Cox and his Dallas born wife set about rebuilding their credit profile. ‘It was tough. We were treated more like ex-cons than expats – seemingly, being away from the US for seven years had the same effect on our credit worthiness as time in the state penitentiary (prison).’
Over 18 months, they build their credit profile paying sub-prime rates for car loans, mortgages and using secured credit cards. Once they achieved scores above the magic 700, they gained access to much more affordable financing.
The solution lies in making it easy for US institutions to make informed lending decisions by leveraging home country credit usage, and proving credit worthiness. Finding institutions who understand the problem and are able to bring a discretionary element to the loan approval process is key. Many of the big national banks cannot be flexible, as they are driven largely by well established processes, but there many institutions want to do business with people who may lack an orthodox credit score, but have great jobs, above average incomes and years of responsible credit management behind them.
‘The problem isn’t going to go away,” says Cox. “The demand for foreign talent will only increase as the recovery gathers pace, and US companies seek to optimise their global talent pools, and drive innovation and competitiveness by building globally diverse workforces. The sooner new arrivals establish a US credit profile, and learn to manage it well, the sooner they start getting access to mainstream rates, and start saving thousands. Every week counts.’