Many banks are now very willing to offer specialised credit cards for students. You need to be an Australian citizen, aged over 18 and study at an education provider with a high provider in order to qualify for a credit card. There are other requirements such that you have to have your parents or your guardians to co-sign on the card. It is also easier for you to apply for a student credit card if you have a part-time or full-time job.
If you are offered a credit card with no annual fee, it might be interesting and attractive enough for you to sign up for one. In case you are wondering if you would need to have a credit card, I will help you. I will walk through the advantages and disadvantages of using a credit card. At the end, there will be many useful tips to make sure you can use one wisely.
First, let’s look at all of the major advantages and disadvantages of using a student credit card
Advantages of a student credit card
- When you use your credit card, you need to pay attention to your card – your credit limits and the time of your repayments. You don’t want to get into debt even after you leave schools. Hence, you will need to learn how to control your finances better. Over time, you will have good financial management practices. These practices are useful for you later on when you have to deal with other complex problems such as mortgages, car loan, or even pension funds.
- If you are sure that you can use your credit card wisely, it can act as solid proof for you to build a good credit rating. Paying your card on time makes up a large portion of your credit score. When the banks see that you can afford for timely repayments of a credit card, they will be more willing to lend you some money.
- When you are a student and have to rely on a certain source of money, possibly coming from your parents, you might find it running dry at a certain time. If you suddenly need to buy something, you can use a credit card as an emergency source of money.
- You can also earn a lot of rewards and deals when you spend with your credit card. When you go shopping, you might see that some retailers offer you certain benefits such as discounts and cash back if you use your credit card. Hence, you can use your card for some rewards that you like. Just remember to not overspend your cash.
Disadvantages of a student credit card
- You see the disadvantages of owning a student credit card really quick if you don’t use it wisely and make your repayments on time.
- If you don’t make repayments on your student credit card on time, you will risk yourself of obtaining a bad credit rating. And opposite to having a good credit rating, when your credit score is low, you will find it more difficult to secure a loan in the future. In case the banks agree to lend you some money, the chance is high that you have to pay higher interest rates for future loans.
- In addition, when you fail to make a repayment, you also have to pay high interest and fine, adding up to the sum you have to pay back to your credit card. Over time, the money that you have to pay for your credit card is more than what you can afford to have. You now enter a vicious circle of paying interest and fine over and over.
- Having a credit card by your side is having a strong temptation to use it all of the time. If you use cash, you will stop spending when you run out of it. However, when you use a credit card, you might want to use it to buy a lot of things you may not need – when you don’t even have enough money. Impulse buying is very dangerous and you might end up spending more than earning.
Tips when using student credit card
Here are some tips you should know when using your student credit card:
- Choose a suitable credit card: You might be overwhelmed with a lot of options that you can have on the market. Do your homework thoroughly and consider all of the features of the credit cards which you are offered. The best features including no annual fee, low-interest rate, low fees and low credit rating (so that you will not overspend your card).
- Know the features of the credit card: Make sure you have an insightful knowledge of your credit card. If you don’t, you might end up getting into trouble. The most important thing you need to know is the interest rates. Then find out about the minimum repayments, fees and charges. The date for repayment is also another factor that you need to know well in order to avoid unnecessary fees. Know when you will be charged when you use your credit card to avoid unnecessary fees. When you sign up for a new student credit card, read the Product Disclosure Statement thoroughly.
- Choose a low credit limit: Some banks will offer credit limit which is as low as $ 750 a month while some offer up to $20000 per year. While a credit card with a high credit limit might be tempting. You can also avoid fees easier if you tend to spend a lot. However, you should only choose a credit card with the limit that you can make to repay.
- Don’t have more than 1 credit card: Owning a credit card is enough. Having 2 or more credit cards will make it harder for you to control your finance as well as your repayments on the credit cards. Not to mention that when you have more cards, you will increase your risk of getting into troubles. Some banks consider having a few credit cards as a sign of bad financial management rather than a good one.
- Use the credit card for emergency situations only: One common mistake that many students have with their credit card is that they use them anytime they see fit. However, make sure you only use your credit card for an emergency situation. Don’t just spend for a fancy dress that you really like. This will help to prevent overspending. You should also set a low credit limit for your card and stick to it.
- Make timely repayments: It is important to make repayments on time to avoid fees. It’s best that you set up a direct debit to make your monthly repayments. You will also build a better credit rating if you always pay your debt in a timely manner.
- Follow your budget: You should make a plan of how much you are going to spend each month with your credit card. Remember to follow it strictly. This also applies to other aspects- when you plan to buy clothes, spend on entertainment, to name just a few. Having a budget will help you to know how much you have and how much you can afford to spend.
- Have a savings fund: While a credit card is a great option for an emergency situation. However, you should also build another source that you can use in case of emergencies. You can set aside a savings fund. This source will be less troublesome than a credit card.
For a student, it is really tempting to have a credit card, especially when you have to rely on your parents for the source of money coming in. However, you need to make sure you understand the risk of owning a credit card. You should also distinguish between what you need, what you want, and what you can afford to have. It is very dangerous if you fail to repay and get yourself into debts.
If you decide to have a student credit card, make sure you use it wisely to make the best use of it. Know about your credit limit and make your repayments on time. Save aside some savings account as your backup plan. Successful in doing so will help you build a good credit rating, which is in turn, will be useful if you apply for mortgages or future loans.