What is a student credit card?
There’s nothing like becoming a student for putting your financial management skills under pressure. You need to budget for course fees, living expenses and potentially pay for the roof over your head too.
The last thing you want when you’re wading through the quicksand that is coursework is to be worrying about lack of funds, so it pays to put budgeting skills in action from the off. But should a student credit card play a part in your financial set up or will it only serve to further complicate your financial situation?
How student credit cards work
Paying for things with a credit card allows you to delay when you actually settle your bill for goods and services. You pay with your plastic online, over the phone or in person and then enjoy up to 56 days to pay off the balance in full. If you don’t clear the full balance you’ll need to pay at least the specified minimum payment each month, and your card provider will add your agreed rate of interest to your balance. For those who don’t clear their balance, debts can start to mount, so spending only what you can afford to clear is key.
In fact, if you can avoid owning a student credit card, all the better. Saving, budgeting or having a part time job are all ways to help you afford a more comfortable lifestyle. If you’ve taken out a student loan, adding a credit card to your debt should be a last resort. Once you’ve left university and entered the job market, there are no guarantees that you’ll land the role of your dreams. Even if you do, you may have to start from the bottom and work your way up – a degree doesn’t automatically mean you’ll be a high earner straight away.
Most young students won’t have amassed much in the way of credit history before arriving at university and may not have a regular income in the form of a job with guaranteed hours either. These are some of the reasons why most students will only be able to access credit cards with lower credit limits.
If you prove yourself to be a trustworthy borrower, you could see your limit increase over time and some cards are specifically designed to help you build your credit rating. However, as your credit report is used by lenders to judge how much of a borrowing risk you are, those without a lot of positive borrowing history behind them are usually limited to cards with higher APR rates too, generally around the high teens or even over 20%.
Not sure what APR is? Take a look at our credit card fees and charges guide to find out more.
Student cards are often offered as part of a wider student account package with your bank. As such you might find there are certain freebies thrown in to sweeten the deal of giving them your business. You absolutely shouldn’t feel obliged to take out a credit card though. In fact, for most students, a zero percent overdraft is the cheapest way to borrow money. You should aim to reduce the debt significantly or ideally, pay the debt back completely before the interest kicks in.
Can you budget?
If your budgeting skills are seriously shaky and you can’t resist splurging money when you have it, a credit card could prove a very dangerous addition to your purse or wallet. With this in mind, it’s super important to be honest with yourself about your ability to borrow sensibly before you sign up.
Whatever you spend on your credit card you will need to pay back. The only exception is if a parent has co-signed for your card, as they can then become liable. But do you really want to risk upsetting your nearest and dearest or harming your credit score? Making payments late or going over your credit limit will result in penalty fees being added to your account and could affect your ability to get credit for years to come. This can impact things like getting a mobile phone right through to taking out a mortgage.
Managing your student credit card
If you’d like to have a credit card on hand to help you hone your money management skills for the future and to access benefits such as additional consumer protection, you’ll need to commit to understanding all those fine print terms and conditions and paying on time.
How to manage a student credit card
- Never borrow more than you can afford to pay back.
- Set up a direct debit so you never pay late, and make sure you have enough funds in your bank account to cover the payment.
- Know what your APR rate is and when you need to pay interest.
- Never withdraw cash on your credit card – not only is this usually a very expensive way to borrow but it could harm your credit rating too as it’s viewed negatively by credit reference agencies.
Stick to the rules and you could build a good credit rating for when you leave university and take advantage of features such as protection under Section 75 of the Consumer Credit Act. This is a piece of legislation that makes your card provider equally liable for goods and services worth between £100 and £30,000 purchased on your card.
You don’t even need to have paid for the full amount to get the cover and if your purchases are faulty, not as described or simply don’t show up, you can be reimbursed for the transaction or cost of repair. That’s a pretty good spending superpower.
Compare student credit cards
If you’re on the hunt for a student credit card, your student current account provider is often a good place to start but don’t rule out the possibility of being able to get a better deal elsewhere, particularly if you’re earning and have some credit history. Making a flurry of applications is a real no-no as it can signal to lenders that you’re a bit of a wildcard who’s desperate for cash. Instead, set aside some time to search out the best possible deal for you.
If you do decide to go with an application (which will involve a credit search) don’t forget that only 51% of the people who apply for a credit card will typically get the representative APR rate, so you may be offered a higher APR or a lower limit by a lender.