Building Credit in Japan

Much like overseas, credit is required in Japan to take out loans, especially large ones. Also like many countries, Japan has various credit bureaus.

There are three bureaus in Japan:

1. the Association’s Personal Credit Information Center
2. Japan Credit Information Reference Center Corp. (JICC)
3. Credit Information Center Corp. (CIC)

When you do take out a loan, many companies will report your loan and payment status to one of these credit bureaus. Banks and other companies will then look up your file with one of these companies to get an idea of whether you pay your bills on time.

In addition to these, banks usually contract with a guarantor company when they give you a loan. this has knock-on effects, which we will get to later.

What lenders look for in Japan

Besides a clean record, lenders in Japan will typically look for the following:

1. Stable address – You should have lived at the same address for at least 2 years. The longer, the better.
2. Stable employment – You should have worked for the same employer for at least 2 years. The longer, the better. Being a proper employee is much better than being a contract employee.
3. Stable employer – The larger, more famous, and more Japanese your company the better. working for Fujitsu, Hitachi, Sony, or Panasonic is better than a small startup. Likewise, freelancers and the self employed have it the toughest.
4. Stable paycheck – If your income varies a lot month to month (like some sales people), this is not perceived well, even if your pay is very high. A lower but more stable paycheck inspires more confidence.
5. Visa Status – If you are a foreigner on a short or medium term visa, some types of loans will be off limits for most banks. This is because you could up and leave the country at any time. Most banks don’t care much about your nationality other than Japanese, and none of them care about your race. If you have permanent residency or are a Japanese citizen, then you will be treated just like any other Japanese person since you are no longer seen as a flight risk.
6. Debt Service – Total outstanding debt in comparison to your total income, and more importantly, your monthly debt service in comparison to your income. Obviously the more you have to pay and the more you owe, the more likely you are to run into problems, and thus the higher a risk you are.

Quirks of Japan

Besides the above, there are some other unusual factors in Japan:

1. While things like bankruptcy and financial reorganization are eventually wiped from your credit record after 7 years or so, various companies may retain this information indefinitely. For example, if you take out a loan then your bank will typically ask a guarantor company to guarantee your payments. This typically happens in the background, so you may not even know if you don’t read the fine print. The company may be ACOM, Orico, or one of many others. If you default on payment and try to get a new loan later, the bank you try to get a loan with may contact the guarantor company that handled the loan you defaulted on. The guarantee company will likely still have this information even if it was purged from your credit report. Of course there is a strong chance they will then deny the loan. In this case, you will have to try your luck applying with other banks that (hopefully) use a different guarantee company.
2. Since credit reports in Japan aren’t typically keyed off of a number like SSN, they will use a combination of your name, address, etc. to make the match. Make sure to use the same spelling for your name every time you apply for any type of credit, ideally Kanji. If you don’t have a kanji name, consider applying for one by registering a tsushoumei (通称名) at city hall.
3. The bank doesn’t care how much money you have – Lenders may well ask for proof of income (which could be pay stubs or tax records which you can get from city hall), or proof of assets (which could be an official balance statement from your bank), but they are much more interested in your actual past behavior. For example, even if you have 100,000,000 yen in the bank, they may still deny you a small loan if you have a history of not paying, or not much history at all. This is because even if you have the money, you might not use it to pay them. For all they know, you could spend the money, or you could simply not pay them – and suing you to get it back costs them time and money.

The Chicken and the egg

Regardless of the above, most foreigners with some type of income, or who have a spouse with income, can eventually get some form of credit. The problem is getting that first loan, credit card, etc.

Strategies foreigners can use include:

1. Apply for a credit card from a bank that you already have an account with overseas. These are few and far between, but for example, American Express Japan is more likely to give you a card if you have one with American Express overseas. Once you get this card, you can use it and build a credit file in Japan.
2. Apply for a store card. Department stores like Marui will often encourage people to sign up for store cards. Sign up for the one that can only be used at the store, as this is more likely to be approved. If you use it regularly and pay on time, they will eventually send you an offer to upgrade to a “real” credit card with visa or JCB brand. Either way, they will report your usage to the credit bureaus. This strategy tends to work well for those with a Japanese spouse or stable income with a large company. (Since they are more likely to be approved in the first place).
3. Apply for a “Secured” credit card. These are called “Deposit Type Cards” in Japan. Although debit cards and prepaid cards can’t typically be used to build credit, secured credit cards, such as Life card, Nexus Card, Luxury card, etc. can. The way it works is that you apply for the card, send in a deposit, and then activate your card. You will receive a bill each month, and when you pay it off, you can access your credit again. This method can basically be used by anyone. The lender is almost sure to approve you unless your credit history indicated fraudulent activity, since they are taking on very little risk.
4. Apply for a small value “shopping loan”. At many furniture and electronics stores, it’s possible to purchase goods via an installment plan known as a “shopping loan”. The lowest possible amount you can finance is typically between 1.5 man to 3 man yen, depending on the company and store. These loans are typically from 1-3 years and are usually interest free. The requirements are not as strict as most bank loans, so anyone with a stable loan and some decent employment history is likely to be approved for a small amount. These are reported on your credit history.

Less effective methods:

1. Family Cards – Ask to be added to your spouse’s (or parent’s) credit card as an “Authorized user”. Most credit cards allow direct family members to be added as authorized users. American express even allows non-relatives to be added. This method works great for getting you a credit card that you can use, but it isn’t typically added to your credit report since the responsibility for payment is technically with the primary card user. It may, however make it easier to apply for your own card with that lender later.

Alternatives

If it’s too early to build credit because you have just moved to Japan, your situation hasn’t been stable enough, or you are a freelancer, you have other options.

1. Family Card – As mentioned above, you can become an authorized user on a spouse’s or parent’s card.
2. Secured Credit Card – Also as mentioned above, you can almost certainly get a deposit type card and start building your credit that way right away.
3. Prepaid Cards – You can use prepaid cards such as Vandle, SMBC Visa Prepaid, Kazoku no Saifu, d Card Prepaid, Kyash, Wise, etc. Note that with the exception of Kyash, Wise, and to some extent Vandle, many prepaid cards don’t support recurring payments such as utility bills or subscriptions. Likewise, many cards don’t support places such as gas stations and hotels where a hold is put on your account initially and the actual amount is finalized later. Vandle is an example of a card that implements this.
4. Debit cards – There are two basic types of debit cards in Japan. “Shopping Cards”, which support Visa, JCB, or mastercard network transactions, and J-Debit cards, which allow payment at some stores such as Yodobashi camera, etc. using your ATM PIN. If you want to use your card online, you will want a shopping card.
5. If you are self employed, consider registering a corporation. A corporation is a separate legal person, with it’s own credit report. If you run a profitable company in Japan for years, the company will eventually be able to take out loans.

Personal Experience

While the author is Japanese, I have lived overseas for an extended period of time. Upon returning to Japan I applied to American Express while mentioning my overseas account. They approved my application right away.

Later, I applied for a Marui store card, which was upgraded to Visa, then Visa gold, then Visa Platinum over the years I’ve since cancelled this card, since I prefer JR’s View Card.

I know foreigners with Japanese spouses who have been able to successfully apply for credit cards, presumably on their spouses’ strength.

I know ex-foreigners who have gained Japanese citizenship after years of living in Japan and then been able to immediately apply for mortgages, etc.

I know foreigners who run their own company and have been able to apply for mortgages in the company’s name. While this does result in a shorter payback period and a somewhat higher interest rate, it is doable.

I know people who are very rich, with a lot of money in the bank and multiple properties they own outright who were still denied loans because they didn’t have a stable enough income.

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