Your student credit card study guide

By Emma Lunn

School leavers heading off to university for the first time this autumn might be tempted to get a credit card to help with expenses, but would they be better off without one?

Your first credit card can be a great start for building a good credit history and a financially responsible future, but it often leads unwary young people into debt.

"Unfortunately, many new students who have not had the benefit of financial education at school can quickly find themselves faced with decisions on credit and debt that they are ill-equipped to take," says Tracey Bleakley, chief executive of financial education charity Personal Finance Education Group (pfeg.org).

Here's a primer on student credit cards -- as well as some cards new students might want to consider.student-credit-card

Can university students even get credit cards?
For most students, a lack of credit history will stop them being eligible for the best credit card deals on the market -- like lucrative rewards cards and 0% balance transfer deals. Instead, they are likely to be limited to higher interest, lower limit credit cards aimed at students or at people with thin credit files.

Start with your bank. If yours offers student accounts, chances are it will also offer student credit cards.

Watch out
If you get a credit card, keep in mind that  your bank will likely want to be compensated for the risk it's taking in extending you credit. Annual percentage rates on student credit cards tend to be high, so they are not a particularly cheap way to borrow money.

If the card you're approved for comes with a high annual percentage rate (APR), check the overdraft interest rate on your bank account. If it's lower than the credit card's interest rate, consider taking advantage of your overdraft to get you through lean times instead of using the card. Halifax, for example, offers an overdraft of up to £3,000 interest free, while the bank's student credit card has an APR of 17.9%.

Another student credit card snag -- credit limits are often low, typically around £500. That means you can easily go over the limit -- and perhaps incurring overlimit fees -- and may have to avoid using your card for larger purchases.

Golden rules for student cardholders
If you do decide to go the credit card route, be sure to adjust your financial habits to compensate for the increased responsibility you're taking on.

Try to clear your balance each month to avoid interest charges, Bleakley says. Furthermore, never use your credit card to withdraw cash from an ATM. This is considered a cash advance, meaning you'll get hit with cash advance fees (as well as a higher APR for the cash advance) and sacrifice the interest-free grace period you would otherwise have with purchases.

Organising your finances can also help you stay on top of your credit card spending. While it may be tempting to streamline your finances by setting up automatic payments for your credit card balance, too much automation can be risky, says Jane Symonds, head of service delivery at the Money Advice Service.

"Even if you set up a direct debit to pay the full amount monthly, if you are not on top of your bank balance you could go overdrawn when the payment comes out," Symonds says.

Cards to consider
Now that you've got the basics, it's time to shop for a credit card. To help you compare, here are some cards tailored to students. Keep in mind that the maximum credit limit listed is not guaranteed -- the credit limit you get will be based on your financial circumstances and credit history.

NatWest student credit card
APR: 18.9%
Max credit limit: £500
Annual fee: $0

This card is a low-maintenance option for students. By linking the card to an existing NatWest banking account, you can set up direct debits to ensure the minimum always gets paid.

Lloyds TSB student credit card
APR: 19.9%
Max credit limit: $1,000
Annual fee: $0

The card gives you access to Lloyds' "Money Manager" service, which breaks your spending down into categories to help you budget.

HSBC student credit card
APR: 18.9%
Max credit limit: £500
Annual fee: $0

If you use the card to book trips through HSBC's Travel Service, you can receive discounts on holidays, car hire and attractions.

Halifax student credit card
APR: 17.9%
Max credit limit £500
Annual fee $0

Free text alerts remind students of the minimum amount due and the deadline for paying the bill.

See related: Blogger Q&A: My first credit card, Young bloggers share the money lessons they've learned

Published: 5 September 2012