More and more adults have decided to jump ship and travel the world. Unlike broke backpackers, digital nomads earn an average of $119,423 per year.
The typical digital nomad is 32 years old and departs the United States to live and travel through international destinations, including Southeast Asia, Europe, and the Caribbean.
Spending time as a digital nomad allows a person to continue their career, travel with their family and experience the world. However, most people will eventually end this lifestyle.
Once a digital nomad settles in a place, they could face financial problems despite a high income. A lack of credit history makes it difficult to secure a loan for a home or car.
Most credit analysts and personal financial advisors note that no credit causes negative consequences similar to bad credit. While traveling the world, digital nomads can start to form a solid financial foundation.
An easy way to build credit as a digital nomad involves becoming an authorized user on a credit card owned by a trustworthy family member or friend. Authorized users get cards in their own names and have access to the full line of credit.
Anyone considering the authorized user option should choose a partner with a good credit history and stable finances. Their timely payments help the authorized user build a credit history.
Authorized users should clear purchases in advance in order to maintain a healthy relationship with their family members or friends. If the family member or friend fails to make timely payments, this affects the digital nomad’s credit history.
Consider a Secured Card
People new to credit could start with a secured card. This involves paying a security deposit that acts as collateral.
A secured card requires no co-signer. Secured cards often have a low credit limit of $1,000 or less.
The banking institution reports payments and uses to the major credit bureaus. This helps the cardholder build a credit history and work toward obtaining a regular credit card.
Secured cards usually have high annual percentage rates of up to 27%. Paying off the balance each month avoids hefty fees.
Travel Rewards Credit Card
Once a digital nomad has a few years of credit history and a good credit rating, choosing a travel rewards credit card provides additional perks. These cards offer discounts and points toward hotel stays, flights, travel insurance and more.
American Express offers the Platinum Card® travel rewards card. People with a good to excellent credit score benefit from its points program and other bonuses related to domestic and international trips.
The Chase Sapphire Preferred® Card charges a $95 annual fee as of 2022, but it also provides a lot of points for travel-related spending. The Chase Sapphire Preferred® Card incurs no foreign currency exchange fees, making it ideal for digital nomads engaging in international travel.
A small personal loan also helps build credit. Lenders report payments to credit bureaus.
For example, Care Credit for dental and healthcare services helps establish a credit history. A credit builder loan for fixed payments, such as a piece of jewelry or fancy travel gear, offers another option for digital nomads who want to build credit.
Maintain Good Credit
When traveling, access to email and the internet facilitates online bill payments. Digital nomads who plan to spend time in areas without reliable internet should consider automating their payments.
Keep Credit Utilization Low
The amount of credit in use plays a large role in a person’s credit score. Using less than 30% helps maintain a good to excellent credit rating.
Request a Credit Limit Decrease
Instead of closing a rarely-used account with a long history, a digital nomad could request that the lender lower their credit limit. Another option involves asking the lender to change the card’s type to a no annual fee credit card.
Keeping the account open and not using it or only using a small amount of the available funds and paying off the balance each month maintains healthy credit and avoids hefty inactivity fees.
Traveling around the world doesn’t preclude settling down at some time in the future. Building a credit history facilitates the process and offers helpful perks for traveling.
In addition to responsibly using these credit tools, digital nomads will also need to take a few other steps in order to build and maintain their credit history. One of the most important steps to take is pulling a credit report from each of the major bureaus once per year.
By law, the three major credit reporting bureaus must provide each American adult with one free copy of their credit report. Spreading these reports out every four months provides key information about credit history and scores.
At some point, the nomad lifestyle comes to an end. With an established credit history and timely payments, the former nomads can enjoy a comfortable and financially secure lifestyle.