4 credit tips for students
By Marianne Curphey
As students begin their first semester at university this autumn, many will be using credit for the first time - and possibly getting introduced to the world of debt, too. However, many young adults aren't familiar with the concept of credit, or even budgeting, and may run into trouble.
"For many students, university is the first time they are away from home and having to become independent whilst learning how to manage their finances," says Jonathan Watts-Lay, director of Wealth at Work, a leading provider of financial education to the University of Lincoln.
Developing good financial habits early can provide a strong foundation for the future and save a fortune over your lifetime, he says.
Here are four credit tips for students:
1. Ask yourself, "Do I really need a credit card?"
Even if students don't actively seek a credit card, it's hard to avoid them. While credit card companies don't specifically target students, most banks offer student current accounts that come with debit cards, and many offer student credit cards as well.
But Andrew Hagger, director of MoneyComms, says unless you have some type of regular income, it's unwise to take on a credit card in addition to your student loan and interest-free overdraft that comes with your student bank account.
If you do get a credit card, pay your bills in full.
If you decide to take on a credit card as a student, Hagger says, make sure you can pay off the bill each month.
Not only will this help you avoid interest, but it will also help you build up a good credit score, something many young people lack because they never have had any credit products, Watts-Lay says.
On one hand, he says, if you don't have any debt, that could count in your favour with future lenders. "But if you have never taken on debt and you don't have a credit score, then you might still not get approved," he says.
"It pays later on to have a good score," Watts-Lay says. A good
credit score helps when you're seeking to rent a flat after university, buying
a car or even interviewing for some jobs. With a good credit score, you'll
likely be offered lower interest rates and better loan terms.
3. Don't give in to temptation to use your card.
Though you may get a credit card for emergencies, or for school-related expenses only, it's easy to get pressured into using the card for other purchases, such as nights out or helping friends cover costs. If you aren't paying off the balance in full, you could end up paying for those nights out well into next semester.
And even if you say you'll use your credit card "just this once", it's hard to not pull it out again.
It's also tempting to use your credit card to withdraw cash, which is known as a cash advance and can be very pricey. Cash advances generally have very high interest, and the interest applies starting from the time you withdraw the cash, not once the billing cycle is over like purchases.
The bottom line: you already have an interest-free overdraft with your student current account. Don't tap your credit card for a cash advance as a financial lifeline.
4. Make your credit card work for you.
"If you are in a situation where you can clear the money you owe and you are receiving income each month, then you could go for a card that rewards you for spending," Haggar says. "One option might be to have a rewards card that is linked to a supermarket where you do most of your shopping."
That way you earn cashback on your shopping and also receive rewards for your loyalty. There are also credit cards that offer cashback on purchases, or airline miles for trips home or other holiday travel.
Learning to manage credit and finances isn't easy, especially when you are surrounded by temptations to overspend, but the sooner you can begin, the better. If you learn - and make mistakes - now, you'll be well equipped to manage your finances as a full-fledged adult.See related: What are millennials' real attitudes toward debt?, Which should you choose: Student debit or credit account?
Updated: 16 August 2017
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