Student Credit Card Guide
It’s no secret that students are short of money. It isn’t uncommon to get halfway through term and run out of cash and seriously need a top up. Are credit cards a good way of doing this? The easy answer is no, but it’s a bit more complicated than that. The truth is that if you aren’t financially stable (which most students are) you can get into trouble easily. However, if you think you can manage it, then there definitely are advantages.
Some banks offer specific credit cards just for students. You won’t be able to borrow a huge amount (as your income is so small or non-existent), so if you were accepted, you’d get between £200 - £500 to start off. However, whatever limit you are given, interest rates are expensive (these aren’t going to be the 0% credit cards you hear of), and shouldn’t be seen as a borrowing tool. Having said that, they can be useful under the right circumstances.
Why should I get a credit card?
It very much depends on your circumstances, and if you are able to control your finances (really think about it, and your spending habits. If you think it could go wrong, it probably will.)
- It’s a good (though potentially dangerous) money management tool, which can help you get into good payment habits. Having it as a student, and managing it well shows creditors you are capable of borrowing responsibility.
- A credit card offers more protection on big purchases than debit cards under Section 75 of the Consumer Credit Act. So if you’re buying something over £100 such as a laptop or car (even if it’s just the deposit), you can claim for things like repairs, a retailer going bust, non-delivery, cancellation and fraud.
- At one point or another, you’re going to have to start building up your credit rating if you want to buy a house or get loans in the future. It’s pretty hard these days to borrow as a recent graduate, as banks are getting more cautious (cheers credit crunch!). So if you can show you have already been responsible with credit, you are one step ahead of the game. The better your credit score, the better deals you’ll be offered (it’s the difference between a cheap or expensive mortgage in the future).
- This is a bonus, rather than a reason to apply, but with some credit cards (though rarely with student specific ones), you can get extra rewards when you spend on it. For example, with TSB you can get 5% cashback on Apple Pay payments on the first £100 of spending each month.
Again, these are reasons to get a credit card, but if you are doing it to ‘get by’ or for some extra cash you are going to get yourself in serious trouble. If you mess up, it will really hurt your credit rating, as well as get you into a debt cycle.
Credit card rules
- Try to wipe out your balance in full each month. That’s the key, you need to get back to 0 every single month, to stay on top of it and so you are not charged interest. If you don’t, the cost of borrowing could be crippling, especially as you have no money coming in. We’ve all heard stories of people who spend years just paying off the interest on debt they have, before even tackling the initial amount they borrowed. Credit cards charge an APR (annual percentage rate) a minimum of 18.5%.
- Never use your credit card to withdraw cash from an ATM in the same way with a debit card. It will cost you! You’ll be charged a withdrawal fee of 3%, and cash withdrawals attract a higher rate of interest than purchases.
- Don’t miss a payment - even if you can’t afford to clear the balance in full, make sure you are meeting the minimum payments, otherwise this will result in huge penalty charges.
- Save for big purchases - if you can, get into the savings habit (easier said than done when you only have £3 for the rest of the week, we know), you can still pay with your credit card to make sure you get the protection, but safe in the knowledge you have the savings set aside to pay the bill off when it arrives.
What you can do instead
Credit cards are not the most forgiving financial product, so if you go wrong (which is so easy to do), you’re going to get in trouble. You know yourself, if you think it *might* go wrong, stay away, don’t touch them. In addition to high interest rates if you don’t clear your balance, you’ll be hit by charges for late payments, charges for exceeding your credit limit and usually charges for overseas spending.
If you are generally skint and need the extra cash, a credit card isn’t going to fix the problem. The best way to ensure extra, regular income is to get a part time job whilst studying. Check out our 100 ways to make money guide which has short and long term solutions to make some cash.
What if i’m in real trouble with money?
Do not, get a payday loan - under no circumstances. It may seem like a temporary fix, but the reality is you’ve made the situation far worse. It also harms your credit rating. If you have money problems, you do have options.
- The Citizen’s Advice Bureau - The Citizen’s Advice Bureau is a charity that offers free impartial advice on all kinds of issues including money.
- Your university - Your uni will have a student finance section that is dedicated to helping students with financial problems. They have funds specifically for students in dire financial circumstances. Go visit them if you’re seriously strapped for cash.
- Your student union - Most student unions have a welfare officer who will help you with financial difficulty.