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Setting up a bank account in a new country may be a little difficult but getting a checking account can be readily achieved. Such an account will probably come with internet access and a debit card. It is also likely that funds can be transferred to the new account from overseas. There will probably be a cost involved with the receipt of foreign transfers. It may not always be so easy to move funds out of the country to an offshore account. This will depend upon the nature of the bank, the kinds of transactions that local laws allow it to undertake and exchange control regulations. With an offshore bank account it is possible to live with these obstacles. The major difficulty that retirement abroad brings is in obtaining credit. Retirees will find it impossible to bring good credit credentials with them. There is very little risk for a bank in opening a checking account for a new customer. Any costs involved will be covered by fees or conditions such as the maintenance of a prescribed minimum balance or a guaranteed regular deposit. The reason that banks are not overly aggressive in attracting new deposit business is because of the practice known as "fractional-reserve" banking. Banks have learnt over time that depositors do not usually want to withdraw all of their funds at the same time. This is as true for an individual depositor as it is for a group of or all depositors. The bank need only keep on hand such funds as will likely cover anticipated withdrawals. This amount is known as the bank's reserve funds. It is now in most countries an amount stipulated by the government's financial authorities and is specified as a percentage of the amount deposited. A simple example will explain the principle of fractional-reserve banking. If a depositor opens an account with $100 at a bank with a 20% reserve fund requirement then the bank need keep on hand just $20 to service the withdrawal needs of that customer. The bank can use the remaining $80 for other purposes. The usual choice for the bank would be to lend this amount for a fee (interest) to another customer. This $80 then becomes another deposit out of which the bank must keep $16 but can use the remaining $64 probably for further lending. This continues until at the end of the process the bank has received $500 in deposits and lent $400. This has all ensued from the initial $100 deposit by a new customer. It is clear that the bank can earn its income from lending money by attracting, relatively, only small deposits. Although it gains from lending activities the bank is also at risk in undertaking such ventures. It will therefore be much more careful about those to whom it lends compared to those from whom it obtains almost risk free deposits. This risk-averse nature of banks with respect to lending impacts upon anyone requesting credit. Retirees as new customers see this first as a refusal of an application for a credit card. The bank will not be the organization making the assessment of credit worthiness although it will deliver the bad news. It is credit rating bureaux that provide banks, and other lending institutions, with reports detailing the credit history of applicants. It is in the U.S.A. that credit rating agencies are most used by potential lenders and the following comments are based upon practices in that country. Credit reporting agencies are powerful institutions. One bad entry on a credit report can cripple borrowing power for years. That is why it's so important to make sure that everything on a credit report is true and accurate. Serious errors such as debts wrongfully listed as delinquent, closed accounts listed as open, debts that belong to other people with the same name do occur. Information obtained by the rating agencies will be local rather than international. A new immigrant may have an excellent credit history overseas but will probably be reported as having no or insufficient history for a year or more. Having no history is as effective in having a request for credit declined as is a poor record. Even the fact of there being an enquiry made to a rating agency will have a negative effect on a subject's credit rating. The only solution to the problem of obtaining credit is time. Eventually the bank may determine from its own records that a retiree's use of a debit card is responsible enough to prompt the offer of a credit card with, immediately, a very low limit. Careful use of such a card will build a good credit history. It is also possible to obtain "funded" credit cards. The businesses offering such cards require a deposit by the potential card holder in return for a credit limit proportional to the deposit. Good use of these cards can also improve a credit rating. Unfortunately good credit history is not, internationally, a moveable asset. Credit rating agencies may not operate in all countries but banking philosophy will not be very different across the world. With pre-planning this need not be an insurmountable obstacle to retirement abroad. Patience and care need to be exercised to enhance a reputation for good personal financial management. Les Johns who has lived and worked on all continents still travels widely. His experience can be derived from his web site which is worth a visit for all considering retirement abroad. At this site it is also possible to purchase the inexpensive country specific books in the series "How to Retire in ...." series published for the Amazon Kindle and the Barnes and Noble Nook. The web site and the books will save retirees much research time.
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Retirement abroad, credit cards, credit, retirees, credit rating agencies, banks, banking philosophy,
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