It’s a universal truth that money is very tight when you’re in college – and some form of borrowing is usually necessary. But how you manage your debt as a student can impact your financial future and shouldn’t be taken lightly.
A student checking account is always a good first port of call as it offers interest-free overdraft up to a certain limit for each year of study. You can also take out a maintenance loan to pay for your living expenses, as well as a tuition loan to cover the cost of your course.
However, there are certain types of borrowing that should be avoided at all costs when you’re a student – and near the top of the list are student credit cards.
Student Credit Cards
Although credit cards may seem like a quick and convenient way to access cash, unless you religiously pay back the full amount you spend on the card each month, they can quickly become extremely expensive. .
Take a credit card that charges typical interest (annual percentage rate or “APR”) of 18.9% (variable). If you have £500 debt on the card and you make the generally required minimum payment of 2.5% (or £5), it would take 12 years and a month to clear the debt and cost £504 in interest alone – more than the amount you originally borrowed.
If you miss a payment – or perhaps there wasn’t enough money in your account to pay a direct debit you set up – you’ll also be charged a late or missed payment fee. around £12.
Even worse, you can damage your credit score. And that can negatively impact your ability to borrow in the future, from mobile phone contract to mortgage.
However, while it’s a bad idea for long-term borrowing, a well-managed student credit card does have its benefits. It can be good to have a credit card in your back pocket for emergencies, for example. Or, if you spend on your card and clear your balance each month — meaning you won’t be charged interest — you can boost your credit score, which may actually help you manage future borrowing. If that’s your plan – and you can manage the card responsibly – how are you going to get one?
Credit cards with student bank accounts
The easiest way is to go through the bank or building society that provides your student checking account. That said, only HSBC and TSB are offering credit cards as part of their checking account package this year.
The HSBC student credit card comes with an APR of 18.9% (variable) and a credit limit of up to £500, while the TSB card charges an APR of 21.95% (variable) with a potential credit limit of up to £1,000.
Again, if you spend on your credit card and don’t pay it off in full, interest charges will add up quickly. If you borrowed £1,000 on the TSB card for example and repaid £20 a month, it would take you nine years and a month to pay off the debt and cost you £1,162 in interest.
You will need to apply separately to the bank’s current accounts and acceptance will be subject to factors such as your status, income and whether you have a history of bankruptcy or county court judgments (CCJs) against you for previous non-payment of the debt.
Other Student Credit Cards
You might qualify for a credit card elsewhere as a student, but since you have no borrowing history, these offers tend to be expensive.
Providers such as Ocean Finance and Vanquis, for example – which cater to applicants with poor or limited credit history – may accept your application but charge APRs of 39.9% and 59.9% (variable) respectively.
Cards like these also come with smaller credit limits than standard credit cards, usually between £200 and £1,500.
As a student, you will not benefit from any agreement with a 0% interest promotion reserved for borrowers with a good borrowing history.
Frequently Asked Questions (FAQ)
How do I apply for a student credit card?
You can use a comparison website to compare credit card offers or go directly to the provider’s website.
In any case, you will be subject to an initial “eligibility checker”. This will perform a “soft check” of your credit score to show you the likelihood of you being accepted for a particular credit card, without leaving a mark on your credit report.
This means that lenders you apply to for credit in the future won’t see where you might have been denied credit and will let that influence their decision.
If you agree to apply for the credit card after using the eligibility checker, the lender will then perform a “rigorous check” on your credit file. If you apply online, you will know right away if you were successful.
When will I receive my card?
What if I change my mind?
What happens to my student credit card after I graduate?
Will taking out a student credit card affect my credit score?