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 leaves 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 pursue 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 may face financial problems despite having a high income. A lack of credit history makes it difficult to get a loan for a house or a car.
Most credit analysts and personal financial advisors note that no credit has negative consequences similar to bad credit. By traveling the world, digital nomads can begin to build a solid financial foundation.
An easy way to build credit as a digital nomad is to become an authorized user on a credit card held by a trusted family member or friend. Authorized users get cards in their name 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 establish a credit history.
Authorized Users should make purchases in advance in order to maintain a healthy relationship with family members or friends. If the family member or friend fails to make the payments on time, it affects the credit history of the digital nomad.
Consider a secure card
People new to credit could start with a secured card. This involves paying a security deposit which serves as security.
A secure card does not require a co-signer. Secured cards often have a low credit limit of $1,000 or less.
The banking institution reports payments and usage to major credit bureaus. This helps the cardholder establish a credit history and work towards getting a regular credit card.
Secured cards usually have high annual percentages of up to 27%. Paying off the balance each month avoids high fees.
Credit card with travel rewards
Once a digital nomad has a few years of credit history and a good credit score, choosing a travel rewards credit card offers additional benefits. These cards offer discounts and points on hotel stays, flights, travel insurance and more.
American Express offers the Platinum Card® Travel Rewards Card. People with good to excellent credit scores benefit from its points program and other domestic and international travel bonuses.
The Chase Sapphire Preferred® Card charges a $95 annual fee starting in 2022, but it also provides plenty of points for travel-related expenses. The Chase Sapphire Preferred® Card incurs no exchange fees, making it ideal for digital nomads who travel internationally.
Here is a full list of credit card recommendations for digital nomads
Apply for a loan
A small personal loan also helps build credit. Lenders report payments to credit bureaus.
For example, Care Credit for dental and health care services helps establish a credit history. A credit builder loan for fixed payments, such as fancy jewelry or travel gear, offers another option for digital nomads looking to build credit.
Maintain good credit
When traveling, access to e-mail and the Internet makes it easier to pay bills online. 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 used plays an important role in a person’s credit score. Using less than 30% helps maintain a good to excellent credit rating.
Request a credit limit reduction
Instead of closing a rarely used account with a long history, a digital nomad could ask the lender to lower their credit limit. Another option is to ask the lender to change the type of card to a credit card with no annual fee.
Keeping the account open and not using it or using only a small portion of available funds and paying off the balance each month maintains healthy credit and avoids heavy inactivity fees.
Traveling around the world does not preclude settling in the future. Building a credit history makes the process easier and provides useful travel benefits.
Along with using these credit tools responsibly, 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 to pull a credit report from each of the major bureaus once a year.
By law, the three major credit bureaus must provide every American adult with a free copy of their credit report. The release of these reports every four months provides key information on credit histories and scores.
At some point, the nomadic way of life comes to an end. With an established credit history and timely payments, former nomads can enjoy a comfortable and financially secure lifestyle.