Student credit cards in Australia

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, such as managing your finances.

It’s fairly likely that around the time you start university, you’re also going to be starting your first 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, an unexpected or emergency expense arises. 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.

Credit Cards 101

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 in full later, and if you don’t do so on time you will generally have to pay interest or fees on top, which can lead to 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.

On top of this, Australia is presently in the midst of a cost of living crisis, with rising inflation pushing up the cost of groceries and utility bills. If you’re concerned about price hikes impacting your daily life, Canstar has some tips to help cut living costs. In these times especially, it’s wise to think very carefully before applying for a credit card or loan 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.

What is a student credit card?

There is no such thing as a ‘student credit card’ per se in Australia – rather, there are credit cards that may be suitable for students and young people. These cards may come with such features as low purchase rates and credit limits, and low or no annual fees. These kinds of cards may be within reach for uni or TAFE students who do not typically have a long credit history, a high income or a record of consistent employment.

While other credit cards often come with options such as rewards, these types of low-rate and low-fee 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.

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 (like another credit card or a car loan) you may have.

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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 only use your credit card to cover any emergency 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.

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Do you want to develop a positive credit history?

National Australia Bank says that, if you are looking to boost your credit score or develop a positive credit history, one way might be to pay your credit card off on time each month. 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, which can be as low as $500 per month. 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 provider 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.

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 or fees if you do not pay off the balance in time.
• Most low-cost cards also offer low interest rates compared to other credit card types, meaning you often don’t pay as much on an outstanding balance as you would with 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 (if there is one), 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.

Should you get a student credit card?

The decision as to whether to get a student credit card will ultimately come down to personal preference and your needs. At a time when the cost of living crisis is affecting almost all of us, you may be wary of a credit card, given the temptation to spend more money than you have, and the subsequent possibility that you might find yourself in debt. On the other hand, a credit card can be useful in an emergency if you need to make an essential purchase or pay for an unexpected expense, and do not have funds available.

Ultimately, the question of whether to get a student credit card could come down to how responsible you are with money. If you feel you would be able to manage one and only use if in times of necessity, to avoid racking up unnecessary charges and paying costly interest, then you might consider getting one. If you feel like you’d be too tempted by the lure of concert tickets or a similar frivolous expense, then perhaps it might be safer for you to hold off on getting a credit card for now.

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 able to fully pay off your balance every month, then a low-rate card could be the cheapest option, 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 or you only plan to use the credit card in emergencies, 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 could be the most effective way of keeping credit card costs down. 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 credit card as a student, here are some tips that may be useful in managing it:

Decide on a responsible credit limit

Whatever card you choose, it’s important you decide upon a responsible 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 to make sure you are paying your card off on time. It can be helpful to set reminders and make early payments if possible to keep on top of your credit card debt.

Try not to use your credit card too much

Try to avoid using your credit card where possible. 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 are 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, and that not doing so on time and in full can lead to significant extra expenses.

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