Student Credit Cards – Everything You Need To Know – Forbes Advisor UK

Used correctly, a student credit card can be a useful tool for those continuing their education, helping to cover emergency expenses or pay for online purchases.

Here, we take a look at how they work and outline the pros and cons, so you can decide if a student credit card is right for you.

How do student credit cards work?

Student credit cards are designed for college and university students who have not yet built up a significant credit history and therefore will not be eligible for standard credit cards.

Credit card Designed for students work much the same as standard credit cards, but credit limits are generally lower – typically between £ 500 and £ 1,500 – and interest rates are generally higher. This reflects the increased risk of non-payment, as perceived by card providers.

To be eligible for a student credit card, you must be 18 years of age or older, resident in the United Kingdom, have a student bank account with the card provider of your choice, and be enrolled in a course of ‘at least two years. Your student loan and any other income may also be taken into consideration.

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What are the advantages?

There are several advantages to using a student credit card. These include:

  • Build a credit history As long as you use your card wisely – within your credit limit and making at least your minimum monthly payment on time – a student credit card can help improve your credit score and build your credit history. . It can help you later in life when you need to apply for other types of credit, like a loan or mortgage.
  • Purchase protection Card purchases are protected under Article 75 of the Consumer Credit Law. This means that if you buy an item costing between £ 100 and £ 30,000 and it does not show up or is faulty, your card provider is jointly responsible with the retailer and you will be entitled to a refund.
  • Awards Some cards offer perks like cash backs or discounts at your favorite retailers – however, it’s important not to be overly influenced by these – it’s the card that counts.
  • Low credit limits A lower credit limit can prevent students from borrowing more than they can afford to repay.

What are the disadvantages?

Of course, there are also downsides to using a student credit card:

  • Missed payments can affect your credit score If you don’t make at least the minimum payment each month, it could have a negative effect on your credit rating.
  • High interest rates Student credit cards usually have high interest rates, so if you don’t pay off your balance in full each month, it can be an expensive way to borrow.
  • Expensive fees If you use your card for cash withdrawals, you will be charged a fee as well as interest from the date of the transaction. The fees for using your card abroad can also be high.
  • Low credit limits While low credit limits can keep you from spending, you may find that the credit limit is not high enough to meet your needs.

Tips for managing your student credit card

If you plan to use a student credit card while in college or university, it is important to manage it wisely. This means you should never spend more than what you can afford to pay off and only use your card for essential purchases.

It’s also important to pay on time each month – this will help improve your credit score and show lenders that you are a responsible borrower. To help you remember to pay on time, it’s worth setting up a monthly direct debit.

Try to pay off the balance in full each month, as you’ll pay off your debt faster and pay less interest. If you can’t afford it, make sure you make at least the minimum monthly payment to avoid penalty charges and damage your credit score.

Finally, if you use your card responsibly, you may find that you will be offered a higher credit limit after several months. Don’t feel pressured into accepting this if you think you’ll be encouraged to spend more than you can afford to pay back.

What happens when you graduate?

When you graduate, you should still be able to use your student credit card. However, if you’ve used your card carefully, you’ll likely qualify for more competitive credit cards that offer perks like interest-free purchases, cash back, or other rewards.

Are there alternatives to the student credit card?

If you’re not sure if a student credit card is right for you, you might want to consider an interest-free overdraft instead.

Most student bank accounts offer interest-free overdrafts, with some being staggered so that the amount you can borrow increases with each year of study. Again, it is important to use your overdraft wisely and avoid going over the limit.

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