Used correctly, a student credit card can be a useful tool for those in further education, helping to cover emergency expenses or pay for online purchases.
Here, we take a look at how they work and outline the pros and cons, so you can decide whether a student credit card is right for you.
How do student credit cards work?
Student credit cards are designed for college and university students who have not yet built up a sizeable credit history and who therefore won’t qualify for standard credit cards.
Credit cards designed for students work in much the same way as standard credit cards, but credit limits are typically lower – usually around £500 to £1,500 – and interest rates are generally higher. This reflects the greater risk of non-payment, as perceived by the card providers.
To qualify for a student credit card, you’ll need to be aged 18 or over, a UK resident, have a student bank account with your chosen card provider and be registered on a course lasting for at least two years. Your student loan and any other income may also be taken into consideration.
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What are the advantages?
There are several advantages to using a student credit card. These include:
- Building a credit history Providing you use your card sensibly – staying within your credit limit and making at least your minimum monthly payment on time – a student credit card can help to improve your credit score and establish your credit history. This can help you in later life when you need to apply for other types of credit, such as a loan or mortgage.
- Purchase protection Card purchases are protected under Section 75 of the Consumer Credit Act. This means if you buy an item costing between £100 and £30,000 and it fails to turn up or is faulty, your card provider is jointly liable with the retailer, and you will be entitled to a refund.
- Rewards Some cards offer perks such as cashback or discounts at your favourite retailers – however, it’s important not to be too swayed by these – it’s the card that counts.
- Low credit limits A lower credit limit can prevent students from borrowing more than they can afford to pay back.
What are the disadvantages?
Of course, there are drawbacks to using a student credit card, too:
- Missed payments can affect your credit score If you don’t make at the least the minimum payment each month, this could have a negative effect on your credit rating.
- High interest rates Student credit cards typically have high rates of interest so if you don’t pay off your balance in full each month, it can be an expensive way to borrow.
- Expensive fees If you use your card for cash withdrawals, you will be charged a fee as well as interest from the date of the transaction. Fees for using your card overseas can also be high.
- Low credit limits Although low credit limits can stop you spending, you may find the credit limit isn’t high enough to meet your needs.
Tips for managing your student credit card
If you plan to use a student credit card when you’re at university or college, it’s important to manage it sensibly. This means you should only ever spend what you can afford to pay back and only use your card for essential purchases.
It’s also important to pay on time each month – doing so will help to improve your credit score and show lenders you are a responsible borrower. To help you remember to pay on time, it is worth setting up a monthly direct debit.
Try to pay off the balance in full each month as you’ll clear your debt faster and pay less interest. If you can’t afford to, be sure to make at least the minimum monthly payment so that you avoid penalty fees and damaging your credit score.
Finally, if you use your card responsibly, you may find you are offered a higher credit limit after several months. Don’t feel pressured to accept this if you think you’ll be encouraged to spend more than you can afford to pay back.
What happens when you graduate?
When you graduate, you should still be able to use your student credit card. However, if you have used your card carefully, it’s likely you will qualify for more competitive credit cards that offer benefits such as interest-free purchases, cashback, or other rewards.
Are there any alternatives to a student credit card?
If you’re not sure whether a student credit card is right for you, you could consider an interest-free overdraft instead.
Most student bank accounts offer interest-free overdrafts, with some being tiered so the amount you can borrow increases each year of study. Again, it’s important to use your overdraft sensibly and avoid going over the limit.
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