The 10 credit card commandments for students

By Emma Lunn

A recent FICO study found that many students in the UK are having a tough time managing their credit cards. The study found that students are more likely to go over their credit card limits than other cardholders, and are also more prone to falling behind on payments.

These credit struggles reflect other struggles young people in the UK are facing, according to the study -- like the economic downturn as well as increases in student expenses, such as tuition. To help, UK.CreditCards.com has put together the 10 credit cards commandments for students. Following them will not only help keep you out of debt, but help you build up a healthy credit history while you're getting your education.

1.  Shop around.
There's plenty of choice in the credit card market, so shop around and find a card that suits your needs. If you've already racked up credit card debt, consider getting a balance transfer card. Several cards, such as those from Virgin Money, Tesco, and Halifax, have introductory offers -- like no interest charges on balance transfers for the first several months. Some cards also charge no interest on additional purchases for the first few months.student-credit-cards

"A balance transfer card can give students the opportunity to spread repayments over a longer period, while cards offering 0% [interest] on purchases can provide students with some breathing space if they need to make a big purchase, for example a laptop," says Virgin Money spokesman Grant Bather. "But it is worth remembering that, with little or no earnings, the amount a student can borrow may be limited."

2.  Pay your card balance in full each month.
All credit cards offer a certain number of days from the date of purchase before interest kicks in. If you pay your bill during this time, you'll never have to pay any interest.

Moreover, paying your bill in full and on time each month will help you build a good credit history. This is vital if you'll be applying for more credit further down the line -- a mortgage, for example.

Keep in mind: If you miss a credit card payment or don't pay at least the minimum payment each month, you'll not only be hit with interest charges, but with a late-payment penalty as well.

3.  Don't overspend.
When you take out a credit card, the provider will set a credit limit -- but don't look at this limit as a target. Only use your card if you absolutely have to. Set a budget and stick to it -- and always keep interest charges in mind.

If you start getting close to that limit, you'll have a high debt-to-income ratio. And that means future lenders will see you as a big risk.

4. Spend wisely.
Think before you make a purchase on your credit card. Ideally, you should use your credit card only to spread out the cost of big purchases, not for day-to-day spending.

Keep track of all your transactions, and don't forget you're borrowing the money whenever you use your card.

Even just £500 on your student credit card will cost you £90 per year in interest if you only pay back a 2.5% minimum payment each month, assuming an annual percentage rate (APR) of 19%.

5.  Use your card to build a good credit history.
Using your credit card regularly, keeping within your limit and paying off your bill in full each month can help you build a good credit history. Lenders will see this when you make applications for credit in the future.

"Whilst it can be advantageous to have a history of solid credit repayments on your credit record, having any missed payments or other problems with repaying credit will have a far greater and opposite effect," says Paul Crayston, spokesman for Money Advice Trust. "This means that any students considering student credit cards should plan very carefully and make absolutely sure they are not entering into an agreement they might not be able to meet in the future."

6.  Don't withdraw cash on your card.
Don't use your credit card to withdraw cash from an ATM unless it's an emergency. Credit card providers charge one APR for normal purchases and transactions and a higher APR for cash withdrawals -- sometimes up to almost 30%.

They also charge interest on cash transactions from day one, rather than giving you an interest-free grace period. And that's not all -- there's often an ATM fee that's either a set fee or a percentage of the withdrawal amount.

7.  Be safe.
It's important to keep your PIN to yourself no matter how much you trust your friends and housemates. Memorise it instead of writing it down.

If you lose your purse or wallet and your card gets used fraudulently, you'll find that your bank will reimburse you for any fraudulent activity as long as you report the theft or loss as soon as possible. However, if the bank finds that you have been negligent and let others know your PIN or have left it in your wallet, you might have to cover the loss yourself.

Always check your statement carefully every month, as it's a good way to ensure there isn't any spending you're not responsible for.

8. Consider cashback cards.
If you are absolutely sure you can pay off your bill in full each month, cashback credit cards or other types of rewards credit cards can be a good way to earn some extra money.

Cashback cards pay back a proportion of the amount spent on the card in cash. These cards can be useful, but you must be sure you can always repay your credit card bill in full each month. Otherwise, any rewards you earn will be dwarfed by the interest you'll be charged.

9.  Read the terms and conditions.
When you apply for a credit card, you should be given some information in the form of a "summary box." The aim of summary boxes is to ensure consumers have all the necessary details and can compare different cards when they apply for credit.

Familiarise yourself with the summary box, as it contains details of any promotional or introductory offers, the standard interest rate or APR on the card, the interest rate for cash withdrawals, the order in which payments are allocated, and details of penalty charges.

10. Avoid store cards.
Stores will often encourage you to open a store card by offering money off your initial purchase. But store cards can be an expensive way to borrow.

"A good rule of thumb with store cards is simply to avoid them," says Crayston.

While a discount can be enticing, the high interest rates of store cards more than make up for it.

"Ten, 20, 30 percent off a dress on the high street is not worth the extra 10, 20, 30 percent on your interest rate," Crayston says. "You'll be paying designer label prices in the long run."

See related: How to teach your teen to budget with plastic; Choose the right card to fund your child's gap year

Published: 7 February 2012