What to look for in a student credit card

By Benjamin Salisbury

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Hundreds of thousands of university students will head back to college throughout September, and they'll be looking for credit options.

There are various ways to cover student living costs, including loans, a student bank account that offers an interest-free overdraft while you study, or taking on part-time work.

But you may need a back-up payment option to help bridge gaps in income or for booking a flight home, and a student credit card could be the answer.

What makes student credit cards distinct?
Student credit cards are different from other credit cards in that they are designed for individuals with limited income and a relatively short credit history.

Generally, student cards have a higher annual percentage rate (APR) compared to cards on the wider market. Additionally, limits on student cards are often lower than they would be on higher-end cards - typically, between £250 and £1,200. Student credit cards also don't normally offer deals such as 0% on purchases for several months, cash back or lengthy 0% interest balance transfer deals.

However, you may be able to find benefits such as a few months of interest-free purchases, or limited cash back.

The eligibility requirements for student cards may vary, but most are similar. There may be some income requirements or residency requirements, as with any regular credit card.

"Undergraduates would be required to pass the same affordability assessment that applies to all our credit cards and to make a monthly repayment of a given percentage of the balance," a spokesperson from Lloyds Banking Group said in an emailed response to questions.

"To apply for a student credit card, you must be a UK resident, 18+ and have a NatWest student current account," Andrew Nielsen, media relations manager at the Royal Bank of Scotland said in an emailed response to questions.

Benefits of using credit as a student
Using a credit card gives practical help by giving you a short period to pay for items without incurring interest.

"You get up to 56 days interest-free on purchases, and using a student credit card enables you to build a credit profile for the future," said Nielsen.

Using a credit card responsibly will help build your credit score, making it easier to obtain credit in the future. The better your credit, the better the deals you are likely to get in the future, too.

"Don't borrow beyond what you can afford," a spokesperson for the National Union of Students (NUS) said in an emailed response to questions. "Look after your credit score - it is a very valuable thing."

Credit cards also offer consumers protection through Section 75 of the Consumer Credit Act for purchases of goods costing between £100 and £30,000.

Finally, using a credit card responsibly helps you obtain good money management skills that will help you throughout your life.

What are the pitfalls to avoid?
Student credit cards are no different to other credit cards in one very important respect: you'll pay more if you don't pay off the balance in full each month. Only use a credit card when you know you can manage the repayments.

"Credit cards can be very expensive if you don't pay them off on time, and in full, every month," an Experian spokesperson said in an email.

Avoid only making the minimum repayment each month, because in the end, you'll end up paying for months and months - and incurring a heap of interest fees.

If you do need to apply for a credit card as a student, research and prepare first. It's best to apply for only one or two credit cards - too many applications at once makes you look desperate for credit and is a red flag to lenders.

"Don't assume you have a good deal with your current bank or credit card," said the NUS Spokesperson. "Work out the longer-term costs of what they are offering."

If your credit card is solely for emergencies, keep it that way. Don't be tempted to use it for superfluous purchases, because once you do, it becomes easier to do so again.

Remember not to use your credit card at the ATM, either. Withdrawing cash with a credit card is called a cash advance, and you'll likely end up paying an ATM fee, a cash advance fee, and a steep interest rate that applies from the date the money is withdrawn.

Finally, once you have successfully applied and have your student credit card, read the terms and conditions relating to when payments are due, to understand how APR works and know when penalty charges apply so you can avoid them.

See related: Gap year can teach valuable financial lessons, You've finished school. Now how do you pay for it?

Published: 15 September 2017