We give you the lowdown on student credit cards, how they work and the things you should look out for.
If you’re a university student, chances are you’re frequently inundated with credit card offers.
Well, a credit card can be a great thing to have. It helps you build your credit score, and for some it makes managing your day-to-day finances easier. Besides, most student credit cards come with great perks, which makes getting your very own piece of plastic all the more tempting.
But as much as a credit card can come in handy, it needs to be used responsibly or it could end up being a very expensive way to borrow. Here are five things you should know if you’re thinking of getting a student credit card.
1. Choosing the right card
There are hundreds of student credit cards out there. Every major high street bank offers them, as do most credit card providers (you can see quite of few of these cards on the 'Offers' page of your ClearScore account).
Credit card offers should include a summary of the card’s key features. This makes it easy to compare credit cards and decide which one suits you best. Things to look out for include:
- the interest-free period (usually about 56 days)
- the interest rate, or APR (annual percentage rate)
- what fees and charges apply
Most student credit cards have student-centric rewards such as discounts and cashback on purchases from your favourite retailers. While these are great to have, don’t let them distract you. A card’s terms and conditions should be a far more important factor in your decision. Try choosing one with a low APR, and make sure you fully understand the terms and applicable fees.
However, most credit card providers will still have some basic eligibility requirements, mainly:
- you must be at least 18
- you must have a UK bank account
- you must be currently enrolled in a college or university course in the UK
Many providers will reject you if you already hold another student credit card.
2. Student credit cards tend to have less attractive terms
Student credit cards work just like any other credit card.
However, they tend to have lower credit limits, and their terms are typically less attractive than those of standard credit cards. These are three terms that are slightly different for student credit cards.
Higher annual percentage rate (APR)
The APR of the best credit cards is usually about 18.9%. Student credit cards, on the other hand, can have APRs of 19.9% and upwards. This may not look like such a big difference on paper, but you’d be surprised at how much it can add up.
Higher minimum repayment amount
The minimum repayment amount is the minimum you can pay each month without having to pay a late payment penalty. It’s usually higher on student credit cards compared to conventional credit cards.
Lower credit limits
Student credit cards have low credit limits, usually in the region of £500. This helps you keep your credit card debt in check.
3. Credit card purchases have payment protection cover
Credit card purchases of £100 and up are protected under the Consumer Credit Act. You can get your money back if your purchase is faulty or isn’t delivered.
Paying a deposit is enough for you to be eligible, provided it’s more than £100. However, the minimum amount applies per item, not to your global spend. This means that, if you buy an item that costs £99 and an item that costs £1, your purchases won’t be covered, even if you bought them together from the same retailer at the same time.
Postage fees also don’t count towards the minimum amount.
4. Never make ATM withdrawals
If you’re cash-strapped, using your credit card to make a withdrawal can sound like a great idea. But it really isn’t, for two reasons.
Firstly, you’ll be charged an ATM withdrawal fee. This is usually 3% of the amount or more.
Secondly, the APR on cash withdrawals is much higher than the APR on purchases. There’s also no interest-free period, which means you’ll start gathering interest from the moment you make the withdrawal.
An ATM withdrawal can get even more expensive if you do it abroad. Besides the usual fees, you’ll usually also have to pay a foreign transaction fee and an unfavourable exchange rate. The local ATM operator may also charge a usage fee.
The following transactions are also considered cash advances:
- buying foreign currency
- transferring money from your credit card to a bank account
5. It’s your chance to build your credit score
A student credit card is your chance to show lenders you can handle credit responsibly.
If you use your card regularly, and you’re able to pay back the full amount each month, lenders are likely to start viewing you as a reliable borrower. This, in turn, can boost your credit score, which means you’re more likely to qualify for credit, and at a better interest rates than you might be on initially.
However, you have to actually use a credit card for it to start having an impact on your credit score. This is because lenders need to see evidence of you borrowing and repaying the money in order to understand what you’re like as a borrower.
Another way you can help to boost your credit score as a student is getting your name on utility bills. Making sure these bills are paid in full, regularly and on time, is another way of proving that you’re a reliable borrower.