Many people get their first credit card when they’re a student in college or university. Having access to a card allows a student to pay for expenses they otherwise couldn’t afford. Whether it’s for textbooks or a rental car, a credit card does offer flexibility. But like everything debt-related, a student credit card should be used responsibly or not at all.
A student credit card is a card offered by a financial institution specifically for young people attending a post-secondary institution. Typically, the credit limits on these cards are between $500 and $1,000, which is fairly low compared to the limits offered to non-students. The lower limits reflect the fact that most students have no credit history, little income, and few assets. As such, students are a bigger risk for a credit card company. Interest rates on student credit cards tend to be around 19.99%.
Even though the credit limits are low and the interest rates high, there’s a good reason to get a credit card as a student. Namely, so long as you pay off your balance every month, you’ll start to build a solid credit history. This will come in handy later on in life when you may require a bigger credit limit, a car loan, or even a mortgage. A prospective lender will want to see that you have a track record of paying off your debts on time.
The other advantage to having a student credit card is the flexibility it offers. Let’s say you work during university, but are paid at the end of the month. Having access to a credit card gives you the ability to pay some expenses that are due before your paycheque arrives.
Getting a student credit card is pretty straightforward. You can apply for a card online, over the phone, or in person at a bank branch. If you’re at school, you may even be able to apply there, as banks often have sign-up booths on campus during frosh week.
An application for a student credit card will ask you to provide information on your current employment situation, debts you may have, as well as your expected graduation date and the name of your school.
It’s important to be aware of the fees you may incur if you get a student credit card. For starters, if you don’t pay your monthly balance in full by the end of the grace period, you’ll get hit with substantial interest charges. Not only will this cost you money, it may also lower your credit rating, making future borrowing more difficult and costly.
Interest charges aren’t the only fees you may be charged if you sign up for a student credit card. Here are some of the common fees you may incur:
· Cash advance fee: This tends to be somewhat higher than the interest rate. So if your interest rate is 19.99%, you may pay up to 21.99% for cash advances.
· Annual fee: Some cards have no annual fee, but some rewards credit cards have fees of between $19 and $150, depending on the rewards offered.
· Balance protection: Signing up for balance protection means you’ll receive a benefit if you’re critically injured. It’s expressed as a percentage of your balance and tends to be around 1%. Balance protection is not a good deal for cardholders so make sure you read the fine print of your contract before agreeing to it.
· Exceeding your maximum balance: If you exceed your credit limit, you may incur a charge as a result.
The single most effective way to save money on your student credit card is to use it responsibly. You should only use the card if you know you’ll be able to pay off your balance every month. So if don’t have a regular source of income or enough money in the bank, a student credit card may not be right for you. Another way to save money is to shop around for a card without significant fees. For instance, find a card without an annual fee and don’t sign up for things like balance protection.
Credit cards are double-edged swords. Used well as a student, they’ll build good credit that’ll help you later in life when you might need a higher credit limit or a car loan. But used irresponsibly, they’ll cost you now in terms of money and later in terms of your ability to borrow. Only get a card if you think you can handle it. Otherwise, stick with a debit card. It’s better to pay cash than rack up credit card debt you can’t pay off.