Student Credit Cards: A Guide

ALASDAIR DUNCAN

Are you thinking about taking out a student credit card? Here are some tips to get you started and some things to keep in mind before jumping in

Your first year of uni is often the time when you get your first real taste of freedom – you can stay up as late as you want and absolutely nobody will stop you, and eating Twisties for breakfast at 11am is a valid and acceptable lifestyle choice. Of course, along with this comes your first intro to the world of adult responsibilities. You’ll quickly realise that if you don’t get yourself fed and to class on time, no one else will do it for you, and you’re probably going to need to start paying your own way through life pretty soon, if you haven’t already.

It’s fairly likely that around the time you start university, you’re also going to be starting your first real job, but full-time study doesn’t always leave a lot of time left over for paid work. It may therefore be the case that some weeks, you find yourself short of funds and in need of groceries, or perhaps a new phone charger or another unexpected expense. If you’re one of the increasing numbers of young Aussies who opt to continue living at home while studying, you may try and hit up the bank of mum and dad for a loan. Otherwise, a student credit card may be one option you consider.

A few words on credit cards

Before we get into the hows, whys and wherefores of student credit cards, it’s worth discussing what credit cards are, and more importantly, what they are not. Credit cards are very common, and on any given day, you’re likely to see someone whip one out of their pocket to grab a burger at lunch, or to do a spot of online shopping. While that shiny little square of plastic might seem to make life easier, it comes with some strings attached and a greater level of risk than some other alternatives, such as a debit card linked to a transaction account.

If you do decide to take out a credit card, then it can be easy to fall into the mindset of ‘I want this shiny new thing right now, and paying it off can be a problem for future me’. This is a risky way to think and to spend. It’s important to remember that the money you’re spending on a credit card is not yours, it’s your bank’s or your credit provider’s, and they’ll want it back. You can splash the cash now, but you’ll always have to pay it back later, and if it isn’t on time you will pay interest, which can lead you to being  in quite a bit of debt. Depending on how much money you owe and how late you are in paying it back, a late credit card payment can also affect your credit score, making it more difficult for you to borrow money in the future.

It’s therefore not wise to take out any sort of credit card unless you are confident you can manage your money in a responsible way, and can pay back what you spend on time and in full. With all that said, this article will answer a few key questions in this area, specifically:

What is a student credit card?

A student credit card is essentially an entry-level credit card, aimed at young people. Uni or TAFE students do not typically have a long credit history, a high income or a record of consistent employment, which can make it difficult to apply for many credit cards, so for this reason some banks offer special cards tailored to these circumstances.

Student Credit Cards
Some banks create credit cards tailored specifically to students and other young people. Source: antoniodiaz/shutterstock.com.

These cards can include features such as relatively low credit limits and interest rates compared to other credit cards and a temporary guarantee of no annual fee, which typically lasts for a year but sometimes for longer, depending on the card you take out and the conditions attached.

While standard credit cards often come with options such as rewards, these types of low-rate cards are generally designed without any such features. This is because they are tailored towards students and others on a budget, for whom money is the most important factor.


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How do you apply for a student credit card?

In general, to apply for any credit card – including a student credit card – in Australia, you have to be at least 18 years old and an Australian citizen or permanent resident.  In most cases, you can apply online, by calling your bank or visiting a branch.

If you meet the criteria to apply, you will need to provide personal information such as your name and date of birth, a valid form of ID, and other supporting material such as recent payslips from your employer and details of any assets (like a car) and debts you may have.

What should you consider before getting a student credit card?

If you’re a uni or TAFE student considering signing up for a new credit card, it’s advisable to do your research, consider your circumstances, and decide if there is an alternative that may suit you better.

There are a few important questions you may want to ask yourself, such as:

Why do you want a credit card?

Are you planning to use your credit card to cover essential expenses in between payslips, or do you want some funds to go out partying with mates? Carefully considering what you will be using the card for will help you determine whether you will use it for necessary purposes, or whether you would be better off saving up to spend your own money on splurges like nights out.

Can you get by with a debit card instead?

If you have a bank account, you’ll more than likely have a debit card linked to it already. A debit card functions in much the same way as a credit card, but you can only spend money that you have in your account, so you can use it without the risk of going into debt.

Do you want to develop a positive credit history?

If you want to develop a positive credit history, having a student credit card and paying it off on time and in full every month could be one way to go about this. If this is your aim, then be sure to carefully consider the terms of the card to make sure you use it responsibly and don’t fall behind in your payments, as this could ultimately hurt your credit score and hinder your goal.

How much can you realistically pay off?

Credit cards come with credit limits, and for student cards these can sometimes be as low as $500. When taking out a card, it is worth choosing a limit you decide is appropriate for you, to help ensure you don’t accidentally spend more than you can afford. Bear in mind that the exact credit limit a lender offers you may depend not only on how much you ask for, but also on the particular card and institution you choose, as well as the lender’s assessment of your creditworthiness.

Most student credit cards also come with an interest-free period, a time during which you can pay off your debt without incurring interest. Take a look at your finances and decide whether you will be able to realistically pay off what you spend within the defined time frame, in order to avoid interest.

 

Student Credit Cards
It’s important to ask yourself whether you can realistically manage a student credit card. Source: Phase4Studios/Shutterstock.com.

What are the pros and cons of a student credit card?

If you’re weighing up whether it’s worth taking out a student credit card, these are some specific factors you may consider. Some of the potential advantages and disadvantages of taking out a credit card as a student include:

Pros:

  • Many student and other low-rate credit cards offer no annual fees for the first year, meaning your only added expense in the first 12 months could be interest payments if you do not pay off the balance in time.
  • Most also offer low interest rates compared to other credit card types, meaning you don’t pay as much as other credit cards.
  • Most come without features such as points or rewards, meaning there may be less of an incentive to buy things you don’t need.

Cons:

  • The low interest rates may only be for a short introductory period, after which time a higher rate may kick in.
  • After the initial fee-free period expires, you may be charged an annual fee for each year you hold onto the card. Whether you are charged a fee and how much it is will depend on the specific card you choose.
  • If you are not responsible with your finances, having a credit card available may encourage you to spend beyond your means or to make impulse purchases.
  • If you are late paying back what you owe on your credit card, you may find this negatively affects your credit history, which could be a problem later in life. For example, having a low credit score could damage your chances of being approved for a home loan in future.

How do you choose a student credit card?

If you decide a credit card is right for you, then once you get to the point of selecting a particular card for yourself, there are several factors worth considering. The choice may well come down to your spending habits and the confidence you have in your ability to manage your money.

If you think you may not be diligent in fully paying off your balance every month but are certain you want a credit card, then a low-rate card may be an option to consider, as the amount of interest you’ll pay will potentially be lower than it would be on a different type of credit card.

On the other hand, if you are confident in your ability to meet repayments, then a card with low or no annual fees may be more appropriate.

Of course, much like the Old El Paso girl says, “¿por qué no los dos?” If you can find a credit card that offers both a low rate and low or no annual fee, this may be the choice for you. Be sure to read any terms and conditions closely to understand any fees or interest you will be charged before choosing to take out a credit card.

What are some tips for managing a student credit card?

If you have decided to take out a student credit card, here are some tips that may be useful in managing it:

Decide on a reasonable credit limit

Whatever card you choose, it’s important you decide upon a reasonable credit limit based on your income, and what you know you will be able to repay. Most student credit cards will have a minimum credit limit that you can apply for, but try to set a maximum limit for your card as well. When choosing a limit, it’s generally a good idea to think not just about what will give you enough spending power to cover the things you’ll realistically need on a day-to-day basis, but also to try and make sure it’s an amount you can easily pay off at the end of each month.

Make a budget

Once you have your card ready to use, it could be a good idea to set up a weekly, fortnightly or monthly budget for yourself. This could prevent your finances from getting out of hand and will help give you better oversight of your income and expenses. It could be worth trying Canstar’s budgeting app or a similar service.

Make sure you stay on top of payments and spending

It is likely that your credit card will be linked to an online banking app, and you will be able to check your balance there to monitor and keep track of your purchases and make sure you are paying your card off on time. It can be helpful to make early payments to keep on top of your credit card debt.

Try not to use your credit card too much

Try to use your debit card or cash when paying for incidentals, and to only use your credit card for your more regular, significant payments such as bills. This way, you may be able to avoid your debt creeping higher than anticipated. It is also a good idea to put aside money from your pay or Centrelink, to help cover emergencies and reduce the strain on your credit card repayments.

If you’re studying and considering a student credit card, there are a number to choose from. When it comes to deciding which one is suitable for you, keep in mind such things as whether you actually need a credit card, how much you are likely to spend, and whether features such as a low rate or no fees appeal to you. Above all, keep in mind that you will always need to repay whatever money you spend on a credit card.

 

Original article by James Hurwood, updated by Alasdair Duncan. Cover image source: adriaticfoto/Shutterstock.com


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This article was reviewed by our Sub Editor Tom Letts and Finance and Lifestyle Editor Shay Waraker before it was updated, as part of our fact-checking process.


Alasdair has more than 15 years of media experience, and his work has appeared in outlets including Pedestrian.TV, the ABC, Junkee and the Sydney Star Observer. He holds a Bachelor of Laws (Honours) from the University of Queensland and has lectured at QUT.

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