Going off to college or university is an exciting time and fraught with financial responsibility. For many of us becoming a student is the first time we are eligible to apply for a credit card and, with fees to pay and books to buy, it certainly seems tempting. So what do you need to know about student credit cards and what do you need to watch out for?
What is Credit History?
Though you are a student and therefore not earning a full wage, from the age of 18 you are eligible to apply for credit cards.
Once you become legally able to borrow, your debt and payment history will be recorded by three credit reporting agencies: Experian, Equifax and Trans Union for the rest of your life. They keep track of your spending habits and particularly bad spending habits such as late payments. Student credit cards are first step in your credit history. Whenever you apply for a loan, credit card or even mortgage in the future, the lender will consult one of these credit reporting agencies to find out whether you can manage your money wisely.
All of this begins with your first credit application, which is likely to be a student credit card. So remember, credit is not 'free money'. If you manage your account well and always pay off your debts in a timely way, you will build up a good credit history and be eligible for lower interest rates, higher spending limits and credit rewards in the future such as very lucrative cash back rewards and air miles programs. But if you mismanage your student credit account you will cause yourself problems in the future and may be refused further credit. So how you pay your debts does count, even as a student.
How are student credit cards different?
Well, fundamentally, they aren't. 'Student credit card' may sound friendly, like borrowing from your Mom and Dad, and they may offer seductive perks that appeal to students, such as earning Karma Points on Facebook with the Chase +1 Student MasterCard, but at the end of the day they are still credit cards.
Some of the offers usually highlighted on student credit cards are:
- No liability if your card is lost or stolen
- The chance to build up your credit history
- Advantage, travel or cash back points
- Transferable points to charitable causes
- 0% Introductory APR, usually for the first six months
- No annual bank administration fees
- Rewards for making payments on time
These are all advantages you will often see on standard credit cards available to people with a good credit rating. Most offers, such as cash back on purchases, are designed to encourage you to spend. 0% APR is for the same purpose, as is donating points to charity, all designed to encourage you to increase your spending. Be careful and remember that money borrowed needs to be repaid. As a student with little or no income, this may prove to be quite difficult. Your spending limit may be high, but your ability to pay back the loan is what is important.
The main things to remember before agreeing to a student credit card are:
- Introductory offers, such as 0% APR, come to an end - find out what the real APR will be.
- Are there any additional annual bank charges?
- If the card carries a cash back incentive, what is the cash back percentage and for which type of purchases?
- Do you really need such a high credit limit or will you just be tempted to spend more than you can sensibly repay?
Don't be blinded by student friendly offers or incentives, what is the card actually offering and is it the best student credit card for you? Can you pay back the debt on time each month? If the answer is "yes" then you will enjoy the great convenience of using a credit card as well as take the first steps toward a good credit rating and future credit opportunities such as a new home and starting a business.
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