This is the time when it can be tempting to hit up your parents with an SOS for some cash or to try and live off a diet of baked beans alone. Let’s be real – neither of these options is really in-keeping with the image of maturity and independence that you’ve probably been striving for. Luckily, student credit cards exist.
What Is A Credit Card?
A credit card is a payment card which works on the basis of allowing you to borrow money on a short-term basis and then pay it back, typically, with interest. Like any loan, the longer you take to pay it back completely means the more interest you will be charged.
What Is A Student Credit Card?
A student credit card will work exactly the same way as a regular credit card; it will just have a lower spending limit, (usually) higher interest rates and fewer rewards than cards for adults who have a steady income and have already got a credit score.
Student credit cards can help you to manage your own finances until your next student loan comes in, so that you can buy the books you need, keep on top of your utility bills and keep your fridge-shelf stocked (without having to run to your parents for a demeaning bailout). They can even help you to get set up for life after Uni – if you know how to use them well.
Knowing how to manage a student credit effectively is extremely important. Before you make any decisions, you need to know how to borrow and pay money back with a credit card without getting hit by fees.
We want you to be fully informed about the kinds of credit card fees which students can be charged, and how to avoid them.
Annual Fees – Thankfully, most banks have removed the annual fee for student credit cards. However, it is worth double checking before signing anything.
Penalty Fees – Credit card penalty fees should be avoided even more keenly than the lecturer you owe essays to. The typical fees that apply are:
Exceeded Credit Limit Fees –A limit should be a limit, right? Not always. Some cards will not decline a purchase if you are going to exceed your credit limit, so you need to keep track of your balance throughout the month and opt-in to any free alerts the lender offers. Going over the limit could not only incur you a hefty fee; it could also negatively impact your credit rating, increase your interest rates and even cause you to be black-listed by lenders in the future.
Foreign Transaction Fees – These fees apply when you use your card abroad or with an international retailer. Unless you deliberately search for a credit card which doesn’t charge for using your card internationally, assume that there will be a fee for doing so. The typical rates for these types of fees are between 2% and 3.5% of the transaction amount. One easy way to avoid this is by using travel money cards, which are easy enough to get hold of and a pretty safe way to use your money abroad (bum-bags are still in right now too).
Cash Advance Fees – ‘Cash advance’ refers to anything which involves turning digital money into physical money (such as cashpoint withdrawals or foreign currency exchanges) and even some bill payments too. Cash advance fees have notoriously high interest rates, so we recommend using your debit card for things like this instead. For instance, don’t get tempted to use your credit card to withdraw money for rounds while on a Uni ski trip in the Alps – the fees will be even worse than the hangover.
Late Repayment Fees – Excuse us if this seems like stating the obvious, but it’s always worth reiterating: if you are late in clearing your balance (i.e. paying back the money you borrowed) at the end of the month, your credit card provider will charge you interest fees on the money you owe them – these fees will not be pretty. The name for the interest rates you agree to pay is Annual Percentage Rate (APR) but, while it’s worth looking closely at these figures before choosing a lender. You also need to understand that these rates will be variable (meaning that the bank can change them to charge what they like, though they will have to give you advance notice of changes). Just remember that when you sign a credit card contract there won’t be any wriggle-room later – it’s not like applying for an essay extension.
What Are The Benefits Of A Student Credit Card?
Knowledge really is power when it comes to using a student credit card, because – if they’re used well – they can be very rewarding.
Some of the benefits of using a student credit card are:
- They allow you to build up your credit rating early
- They can help you manage your finances
- Larger payments are protected if something goes wrong
- You will have access to emergency funds if they are needed
- You might be able to get some rewards
- They help you learn how to manage credit with relatively low stakes
Things To Consider When Applying For A Credit Card
How will I stop myself buying more than I can afford? Credit cards are not magic money-makers. Even though the money seems to come out of thin air, when it comes to paying it back it’s very real. For this reason, credit cards should only ever be used to cover expenses and purchases that you will be able to repay quickly. Ideally, student credit cards should only be used as a way to cover short-term necessities, larger purchases which you will shortly have the money to repay, or to strategically build up interest in your savings account or your credit rating.
Will I be able to pay off each statement in full? – A perfect test for whether or not you can afford to make purchases with a credit card if to ask yourself – Will I be able to pay off each statement in full? Even though credit cards will allow you to make smaller payments each month (called the ‘minimum’), always try to pay the whole thing. If you choose to make the minimum payment, you’ll only end up owning more in interest fees because it will take you longer to clear your balance. If, for some reason, you can’t pay off the whole bill at the end of the month, you should still pay as much as possible. Missing minimum repayments could affect your credit score and hit you with penalty charges too.
What types of things should I pay for with a credit card? High-value items are the best things to buy on a credit card, though we understand that sometimes necessity calls. Why larger items tend to be better is partly because of the fact that ‘little and often’ payments can quickly rack up before you realise what you’ve spent, and also because larger purchases are legally protected if something goes wrong. New laptops, tickets for a trip abroad or car deposits are the sorts of things which you might want to use it for if you have the choice.
How can I ensure that I meet the monthly payments on time? If you’ve ensured that you can afford a credit card, and you’re just worried about remembering to make the payments at the right time, then we strongly recommend setting up a direct debit from your current account to automatically pay the balance of credit that you owe. If you ensure that your credit card balance due date is going to at a good time of the month (a time when you will have enough funds in your current account).
Will I get credit card rewards? While rewards points, cashback and air miles are often key selling points of other credit cards, many student credit cards will avoid offering many rewards as they don’t want to be seen as encouraging students to spend too lavishly. By comparing different credit providers, you will be able to see where you can earn rewards.
Do I have to use my credit card? Since there is so much talk these days about credit ratings, it could be tempting to think of just getting a credit card for that purpose alone and tucking it away somewhere. Sadly, it doesn’t quite work like that. It’s not yet clear whether the act of just taking out a credit card will have any effect on your credit rating if you never use it. It also makes you more vulnerable to fraud, because – if the details were found and used by someone – you wouldn’t even know about it!
Can I get more than one credit card? – Potentially, but we don’t advise it. Having one credit card should be enough to manage everything else you have going on at Uni. Even if you see other people who have multiple cards splashing their cash or raving about their rewards, try not to get FOMO. Just remember – they might not be managing their money well and, frankly, you don’t need the kind of stress which can follow that!
Credit Card Jargon You Need To Know
Unless you’re studying finance, then you’re unlikely to be on top of the credit jargon. Here is our jargon-buster dictionary to help:
Card member – This refers to the person that the card is issued to (i.e. you).
Cashback credit card – Some credit cards will allow you to withdraw cash from an ATM, but – unless your card is a cashback card with free withdrawals – remember what we told you above!
Creditor – a business or bank providing you with the credit card and lending you the money.
Credit limit – As we explained briefly earlier, with a credit card, there is going to be a limit to the amount of money that the creditor is willing to lend you. As a student, your credit limit is likely to be relatively low.
Credit rating – This is the evaluation of the credit risk you pose to a lender. A high credit rating means you’re likely to pay them back in a timely manner.
Default – If your account goes into default it means that you haven’t made payments on time for a certain amount of months (the time frame will depend upon your lender). If your lender sends you a default notice, then you need to pay the whole balance within, typically, one to two weeks and will be a serious setback to your credit rating too. This is far from ideal, so avoid getting into this situation.
These recommendations have been made by Glide in good faith, please consult your bank or building society for more information, and to see if a credit card is the right option for you