Credit cards don’t have to be a fast-track to doom and debt. Use them to work for you and you’ll reap the benefits. Here’s how to be fantastic with plastic.
What is a credit card?
Quite simply, a credit card is a tool for delaying payment for the stuff you buy.
The credit card company lends you the money, and you pay them back at a later date, typically with additional interest. As with most loans, the amount of interest you pay increases depending on how long you take to repay.
But, pick the best credit card and it could be 0% for several weeks (or even months), which in turn helps with budgeting. There are other key benefits too, as we’ll explore below, without neglecting the pitfalls.
What is a student credit card?
A student credit card is designed for uni students who don’t always have the income and credit score needed to be approved for a standard credit card. Student credit cards usually have lower credit limits, tend to have higher APRs and offer fewer rewards.
However, used in the right way, student credit cards can be a great way to manage your finances and build your credit score.
Why should you get a credit card?
Reasons to get a credit card
- They can improve your credit score if you manage them well. You’ll need a decent credit history to get financial products (like a mortgage) later on in life. The better your score, the better the deals you’ll be offered.
- Pay for items costing over £100 with a credit card and Section 75 protection means the credit card company will refund you if something goes wrong. You can even just pay a deposit by credit card to be eligible to claim for things like repairs, a retailer going bust, non-delivery, cancellation and fraud.
- Learning how to run a credit card account properly teaches you vital money management skills that could see you better off in the future, too.
- As with student bank accounts, credit cards often come loaded with cashback and rewards. As long as you’ve got a sound repayment plan, you could be quids in.
- They can also be handy when you run out of money and still have essential costs to cover, but we’d advise that you use your 0% overdraft first – you’ll have longer to pay back your borrowings, and won’t have to deal with interest and fees.
7 credit card traps to avoid
- Never spend more than you can repay within the 0% interest period.
- Check your credit history before you apply and, if you need to, take steps to improve your score.
- Don’t make multiple applications too close together, as this can affect your chances of being accepted. Pick one card that not only delivers what you need, but also that you believe you’d be accepted for.
- Check the annual interest rate (the APR). This indicates how much extra you’ll be charged if you don’t pay your balance off in full each month. If you’re a bit rusty on your banking jargon, allow us to explain what APR is.
- Make sure you understand the terms of any promo deals, including minimum spending or repayments.
- Check all the penalty charges associated with using the card, including going over your credit limit, spending abroad or withdrawing from cash machines (although you should avoid all these things anyway!).
- Check your monthly statements! As well as spotting potential fraud, you can see at a glance whether you’re on a budget, when you need to pay, plus any rewards or interest that you’re accumulating.
Should you get a normal or student credit card?
Credit cards designed for students don’t usually offer great rewards, but you may have more chance of getting one. They come with smaller credit limits (minimising your chances of stacking up lots of debt) but tend to have higher APRs, so can be costly if you don’t clear your balance in full.
Standard credit cards open up your options in a couple of ways. If you’re ultra-disciplined, a 0% purchase card gives you a window of interest-free spending. You could do all your regular shopping on a 0% card while letting your own funds build up in a savings account (earning you a bit extra in interest).
That said, it’s still important to only buy what you have the cash for, and to keep that money safe until you need it to clear your balance. The aim of the game is to always repay in full before the interest kicks in. In other words, always make sure you plan ahead.
If you like the idea of rewards, a cashback or points card can earn you anything from money back to air miles and store vouchers and can be worth it if you’re loyal to one store or supermarket.
Again, rewards are only valuable if you’re scrupulous about clearing your balance in full each month. Otherwise, any extra charges, penalties (or fees for paying by credit card) could wipe-out any gains.
Best credit cards for students
Whether you’re accepted for a student or standard credit card depends on a number of factors (such as your credit score), so you’ll need to check out the small print for yourself.
Student credit card comparison
We’ve provided ballpark figures here, but who gets what credit limit and on what terms is down to the bank. Check the terms for yourself!
How to use a credit card properly
- Don’t treat credit cards like an easy-access loan – only use them to buy things you can afford and have the cash for.
- Always try to pay your statement balance in full each month. Only ever making the minimum payment is a false economy, as it’ll take longer to clear your balance and make your purchases cost even more.
- Use the Direct Debit trick to never miss a payment. Set up a Direct Debit from your current account to automatically pay the balance (or any other amount) owed on your credit card. Make sure you’ve got enough cash (or interest-free overdraft) in your current account, though!
- If you can’t clear the balance in full, do still pay what you can. Missing minimum repayments could affect your credit score and hit you with penalty charges, too.
- Buy high-value items on a credit card to get Section 75 protection against the retailer going bust, or your item not being as expected. Think holidays, tickets, gadgets or eBay. You’ll need to pay directly with your credit card to get S75 protection (i.e. not via PayPal or other payment services).
- Going after rewards points, cashback or air miles? It could be worth using your credit card for everything to build up better bonuses, while your Student Loan, salary or other income sits tightly in your savings account brewing extra interest. Just make sure you’ve still got the cash to cover your spending.
- Never withdraw cash on a credit card. You could be charged a higher interest rate than on purchases, as well as a handling fee. Either way, it’s going to cost you – so don’t do it. If you want to transfer cash available from your credit limit into your current or savings account, ask if the card company offers a money transfer service instead. Check the terms carefully, though.
- Don’t spend more than your credit limit or you’ll face penalty fees. It’s worth keeping an eye on your spending towards the end of the month in particular.
- The jury’s still out on whether getting a credit card but not using it will do anything useful for your credit score. Tucking it away and forgetting about it isn’t great for fraud prevention, either.
- You only need one credit card. Any more than that and it just gets stressful.
The key to happy credit is knowing how it works and using it responsibly. Only take on what you can cope with and always what you can afford to repay. Follow these two rules and you won’t go far wrong!
Hold up – did you know that you might be owed a student tax refund?