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Student Credit Cards

Now you have started University, you might have received an offer of a credit card from your bank or another finance company. Read on to find out more about this form of borrowing.

When you apply for a credit card, you will be given a spending limit, called a credit limit, that you can spend up to. How much credit you are given will depend on your existing debt and how well you manage your finances, but most student credit cards will not exceed £500. As you are borrowing money, your bank or Credit Card Company will charge you interest. The interest rate will vary between providers and is based on your financial circumstances.

What are the benefits of having a credit card?

  • Buying with a credit card can give your purchases extra protection

Section 75 of the Consumer Credit Act states that the credit card company is as responsible as the seller if something goes wrong with your purchase, providing the cash value of the item was between £100 and £30,000. This means that by paying with a credit card, you have another means of getting your money back.

  • Having a credit card and using it responsibly can improve your credit rating

Using a credit card and keeping up with your repayments can demonstrate to potential lenders that you are likely to repay any monies they might lend to you in the future.

  • It’s a good way of borrowing money for free in the short term

If you are certain that you will be able to repay the amount you have borrowed when your statement comes, spending on a credit card can provide a low cost option to tide you over.

What are the downsides?

  • If you borrow beyond any initial interest-free periods, credit cards can be an expensive form of borrowing

If you intend on using a credit card, always make sure you can repay by the next statement date as interest on your balance can really start to add up. If paying it off quickly is going to be a problem for you, look at other options, such as an interest-free overdraft facility.

  • A credit card can be a temptation to spend

Some people might find that by having quick and easy access to money, the temptation is there to spend, spend, spend. If this applies to you, you might want to think carefully before signing up to a credit card. If you like the comfort of having your purchases protected by the Section 75 rule but are worried that you might end up spending more than you intended, you can always request that your bank or credit card company lower your credit limit to a level you are more comfortable with. Be sure to check how this might impact on your credit rating first.

  • Withdrawing cash can be costly

If you take a good look at your credit card agreement, you will notice that to withdraw cash from an ATM using your credit card accrues a considerably higher rate of interest. Therefore, try to avoid using your card in this way.

If you are thinking about a credit card, see these top tips from the Money Charity:

  • Know all your options – your interest free overdraft might actually provide you with access to more money, and it normally goes up each year while you’re studying.
  • Never withdraw cash – you will be charged a withdrawal fee of three per cent every time.
  • Pay it off in full each month – this is the key to being a responsible borrower and reaping the rewards in the future!
  • 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 in to the savings habit, you can still pay with your credit card, to make sure you get the protection mentioned above, but in the knowledge you have the savings set aside to pay the bill off when it arrives.