Credit card Guides

Student credit cards

By Emma Lunn editorial@consumerchoices.co.uk

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Want to take out a student credit card? This guide explores your options and shows you what to watch out for (Updated 4/12/09).

Managing a budget when you’re a student is never easy. Not only do tuition fees, accommodation costs, books and food all add up, but the weekly alcohol bill can cause your outgoings to skyrocket!

Although applying for a student credit card may be a useful short-term strategy for those who are struggling to make ends meet, it makes more sense to go through your budget with a fine toothed comb first and highlight areas where you can tighten your belt.

Most student cards charge a higher than average level of interest and in the long-term, it’s both cheaper and easier to use savings or a student loan to get you through the study years. Most banks offer a 0% overdraft facility as part of a student account, which can be your best friend during leaner periods.

If you feel that a student credit card could benefit you, and sometimes they can come in handy, then shop around and find the best deal for you. Don’t just settle for the card that comes with your student bank account.

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• Card types
• How to choose the right card
• How to use a student credit card
• What to watch out for

Card types

There are several types of credit card available to students:

• Student specific cards – These cards are designed with the student in mind, but in 99% of cases you need to be an existing customer of the bank that provides them in order to qualify.
• Adverse Credit Cards – These cards are geared towards people with poor credit ratings. As students are on low incomes and are likely to have their applications for standard credit cards rejected, then adverse credit cards work as a viable alternative. Adverse credit cards come with especially high levels of interest, and should therefore only be used in emergencies. Always be sure to pay off the full balance at the end of each month. Adverse credit cards can also be a good way to build up a credit history if you’ve not borrowed money before.
• Prepay Credit Cards – Prepay cards can be topped up before you use them, and are ideal for students on a tight budget who require the functionality of a credit card – for online purchases requiring Mastercard or Visa for example.

How to choose the right card

If you’re a student it’s not so much of choosing the right card but applying for a card for which you’re likely to be approved. Students tend to have little or no credit history, especially if they’ve gone to university straight after leaving school, and lenders are wary of lending to people with no history of managing their money.

For this reason students are likely to be excluded from the best credit cards deals on the market including those that offer 0% introductory offers on purchases or balance transfers.

Some banks offer a student credit card alongside a student bank account and this is likely to be your best bet at being accepted for a credit card while you’re at university.

How to use a student credit card

The advice here is simple: only use a credit card in emergencies. When you use your credit card you’ll have a certain number of “interest-free days” (usually between 45 and 59) before you start being charged interest on the money. If you won’t be able to pay off your balance in full each month, interest charges can build up quickly leaving you with a bigger debt to repay. If you have an adverse credit card then the APR is likely to be very high, sometimes up to 50%, and you’ll incur a large amount of interest very quickly.

If you can’t afford to repay your bill in full each month make sure you at least repay the minimum amount. The minimum you have to pay will be shown on your statement. If you don’t pay this amount each month you’ll also be charged penalty fees for missed payments and your debt will get even bigger.

Never, unless it’s a life or death situation, use your credit card to withdraw cash from an ATM. Cash withdrawals are treated differently to normal transactions and incur a higher interest rate. They also don’t benefit from the standard number of interest-free days and will start incurring interest straight away. In most cases there will also be an ATM fee.

Download our complete guide to student life and money

What to watch out for

• Keep your spending in check, and question whether you really need a credit card. Could you live without it? If the answer is yes, then make the most of your savings and an interest free overdraft instead.
• Make sure you know the APR of any credit card you apply for – the lower the better.
• Make sure you pay at least the minimum repayment each month otherwise you could be charged a penalty fee.

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