What is a student credit card?
Student credit cards are designed especially for students, who generally have no employment history or credit history may seem too risky for some card providers. Student credit card providers are more lenient with eligibility requirements, allowing students unable to prove their creditworthiness to apply for a credit card, generally with low spending limits and a low annual fee.
Student Credit Card Benefits
A student credit card will very likely be your first credit card, and how they are structured allows you to understand how credit and credit cards work, without the risk of accruing unmanageable debt. A student credit card can be a great way to learn how to only spend an amount you are capable of repaying, and will also teach you how to structure repayments to avoid paying interest on the owing balance.
Most student credit cards will provide a number of benefits:
- Access to credit
- Opportunity to build your credit profile
- Low or no annual fees
- Low credit limits
- Interest-free days on purchases
These first two benefits are significant; you can get access to credit without a credit history and, by successfully managing your finances and using your credit card responsibly, you can begin to build a strong credit profile. Good credit history will make it easier to apply for loans or other credit cards in the future.
You will also be able to learn how to manage the temptation of overspending when provided with a credit limit - this is a vital part of future budgeting, and understanding how to spend and live within your means will prevent you from falling into large amounts of debt later in life.
How do student credit cards work?
Just like any other type of credit card, a student credit card is designed to provide cardholders with access to credit. When you apply for a student credit card, the card provider will assess your application to determine your credit limit. This credit limit is the total amount you can spend on the card. Do not take this as a challenge! Only spend what you can afford to pay back.
You can use a student credit card to make both in-store and online purchases.
Spending responsibly means only using the card to cover purchases you can afford to pay back at the end of each monthly statement period. If you do not repay the full amount of your balance by the due date, interest will be applied at the card’s standard purchase rate.
Avoid paying only the minimum repayment, as this will mean paying interest on your purchases, and potentially staying in debt for years. While your student credit card can also be used to withdraw money (this is called a cash advance), this should also be avoided. There are no interest-free days on cash advances, plus cash advance fees may apply.
In terms of applying for your student credit card, it’s best to check the eligibility requirements before you apply. Student credit cards are typically offered to Australian citizens, aged 18 or over. A co-signer, such as a parent or guardian, may be required as security for the credit provider.
7 ways to compare student credit cards
Comparing student credit cards is relatively easy - however, there are some crucial factors you should consider to ensure you choose the most suitable card for you. Ideally, you’ll want to choose a card that provides a reasonable amount of available credit but doesn’t offer the opportunity to overspend or accrue large amounts of interest.
Comparing Student Credit Cards:
- Low Interest
- Low or No Annual Fees
- Low Penalty Fees
- Low Credit Limits
- Interest-Free Days
- Warranties and Protection
1. Low interest
Try to choose a card with a low purchase rate. This is the amount of interest applied to your outstanding balance. While it’s best to clear your balance each month, if you have a card with a lower purchase rate, it will keep interest charges lower if you happen to carry a balance.
2. Low or no annual fees
A card with low or no annual fees can help you save money over time. Your card provider may waive the annual fee if you provide your student card, or if you spend a certain amount on your card each month.
3. Low penalty fees
Credit cards can charge all sorts of fees. Be aware of fees such as late repayment fees and fees for going over your credit limit, and avoid all fees wherever possible.
4. Low credit limits
If you are new to credit, a lower credit limit can limit your spending, while also limiting your potential for getting into trouble. With a lower spending limit, you may find it easier to keep to a budget, allowing you to repay your purchases, staying out of serious debt.
5. Interest-free days
Many credit cards offer interest-free days on purchases to cardholders who pay their balance in full each month. With ‘up to 55 days interest-free’, this can provide a window for interest-free shopping – but be sure to read the small print so you understand how it works.
6. Warranty and Protection
While most student credit cards keep it simple, some offer complimentary extras such as purchase protection and extended warranty on purchases. This can come in handy when buying expensive items, such as a laptop or pricey textbooks.
While rewards are generally only offered on cards with higher annual fees, you may find a student credit card with a worthwhile rewards program. If you do, be careful not to spend more than you can afford just to earn rewards. The rewards on offer simply aren’t worth getting into debt over.
Student Credit Card User Guide
While it can be exciting choosing your first credit card, it’s incredibly important to opt for the right card – and to use it wisely. Try not to choose a card that offers heaps of features you don’t actually need. These cards tend to have higher annual fees and higher interest rates, making them more expensive in the long run.
Try not to get carried away with your spending
Just because you can spend, doesn’t mean you should. While a credit card is designed to ease cash flow, you should only spend what you know you can afford to pay back at the end of the month. Falling into a spiral of debt can be all too easy, especially when you only make minimum repayments.
Like any other card, student credit cards can offer a range of useful extras. These can include introductory offers on purchases and balance transfers, contactless payments and compatibility with mobile devices.
Student Credit Card Pros and Cons
8 Essential Student Credit Card Tips
1. Choose the right card
Compare the options to find the card that best suits your needs. Keep in mind annual fees and interest, and don’t be swayed by more expensive cards offering extras – especially rewards – that you don’t need.
2. Create a budget and track your spending
Look at how much you have coming in, and how much you need to spend. Then create a budget that allows you to spend within your means. It can be all too easy to keep on spending on your card, thinking you’ll deal with the fallout later. Sometimes you don’t want to know how much you’ve spent because it’s a bit too scary to deal with.
Make a habit of keeping track of your card spending – either online or via the card’s app – it may help prevent you from overspending.
3. Create an emergency fund
While credit cards are great for emergencies, what happens if you can’t afford to pay off that emergency purchase afterwards? Instead of relying on your card as a backup – and paying too much in interest if you can’t pay it off right away – work on creating an emergency fund instead.
4. Create a spending limit
Once you have created a budget, you will know exactly how much you can spend each month. Set a spending limit on your credit – and don’t go over it. Some card providers allow you to set spending limits on your card to help you if your willpower is low.
5. Only use your credit card for essentials
When you first start using your credit card, you may want to keep it for essentials only. This should make it easier to pay off at the end of the month.
6. Clear your balance each month
The best way to deal with a credit card is to pay it all off each month. This can help you to keep on top of your spending, while also avoiding interest accruing on your balance.
7. Pay off your balance early
You don’t have to wait until your statement arrives to pay off your credit card. You can transfer money onto your card to pay down your balance whenever you like. This can be a great way to avoid spending more than you can afford to pay back.
8. Don’t overspend - ask for help if you do
When you’re new to credit – or even when you’ve had a credit card for years – it can be amazingly easy to get in over your head. Avoid overspending, and create good habits to clear your balance in full each month. And, if you get into trouble, seek help straight away.
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