"I'm a student, should I get a credit card?"
University is expensive.
While students can support themselves through government loans, generous debit card overdrafts, a part-time job or money from parents, there are times when you need a little extra money. For some, a credit card may be useful.
While students should decide for themselves if they need a credit card, here’s are run down why it may be a good idea to get one and what to watch out for if you do.
Building a credit score
Student accounts are easy to apply for and your student loan is probably the easiest loan you will apply for in your life.
After university, getting a loan can be a bit trickier. Banks will rate your credit history, known as your credit score, and decide how risky it is to lend money to you.
Lenders will use this score to determine whether or not to give you a loan, as well as how much interest they should charge for that loan.
Building a good credit score, then, is vital. Experience lending money in the past will lead to you getting a better credit score.
Having access to credit and, crucially, showing that you can use it responsibly will increase the trust banks place in you in the future.
If you have a history of paying off debt, banks will be more willing to give you a loan.
This can, of course, go both ways. If you fall into a spiral of credit card-induced debt at university, you will find approaching a bank for a loan a lot harder down the line.
Have your purchases protected
While most of your purchases as a student may be small (a cheap pint at the union, supermarket own-brand goods etc), if you do purchase more expensive items, a credit card is more useful.
Credit cards offer more consumer protection than debit cards when it comes to buying larger items.
When you pay for items worth over £100 with a credit card, you are subject to what is called Section 75 protection.
This means that the credit card company is guaranteed to provide you with a refund should anything go awry.
Credit card protection is limited on purchases up to £30,000 – although we assume that won’t apply to many students out there, particularly those reading money guides such as this one!
Cash back rewards
As a student, you should always be on the lookout for a good deal, a discount or a freebie.
Credit cards, particular student ones, offer this. Most cards will allow give you a certain amount of cash back for spending at certain shops.
Others will give you a discount at certain outlets.
It varies per credit card company, so have a look around for what type of cashback rewards are on offer and pick the one you are most likely to profit from.
Student of finance
Having a credit card will teach you vital money management skills, providing you used your credit card responsibly.
Sensibly using a credit card requires a certain amount of discipline. Every month you should pay off your existing balance so as not to incur interest fees.
If you can’t pay off your whole monthly balance, you will start being charged interest at usually a pretty expensive rate. These charges can rack up.
Sometimes you may not be able to pay off your monthly balance. However, it is vital you pay off your minimum monthly repayments.
Failing to do so will incur further charge. Most damagingly, it will result in a black mark on your credit file and harm your future lending prospects.
One way to ensure you never miss your minimum repayments is to set up a monthly standing order for the required amount.
If any of these seem a bit much to keep track of, getting a credit card may not be the best option for you. If you think you will easily overspend, miscalculate your finances or forgot to pay off your balance, having a credit may end up damaging your financial future and might not be worth it.
What to watch out for
Alongside keeping an eye on your balance to ensure you pay it off every month, there are a few other things you should watch out for if you do decide to become a credit card holder.
Be cautious using your card abroad. Unless the credit card you have says otherwise, you will be hit with hefty foreign transaction fees.
Of course, if you’re stuck in Berlin at 3am with no cash or other working cards, having a credit card to use can be a life-saver.
But only use the card abroad if you really have to, as it will cost you.
At the same time, withdrawing cash through your credit card will also incur hefty fees.
Again, if you’re in desperate need of cash, withdrawing on your credit card may be useful.
But again, you will pay for the privilege.
For more advice on managing your money, whether a student or otherwise, check out our money guides.