What is a student credit card?
A student credit card is designed especially for students, typically offering low spending limits and a low annual fee. For anyone new to credit, it can be difficult to get approved for a standard credit card. With no history of credit or consistent employment to assess, these applicants may seem too risky for some card providers. Which is where student credit cards come in.
Card providers offering student credit cards tend to offer more lenient eligibility requirements, allowing students who are unable to prove their credit worthiness a chance to apply for a credit card. As these cards are provided to applicants who are untested in the world of credit, they generally don’t offer high credit limits.
With a low or no annual fee, student credit cards also tend to be fairly simple. That means no fancy features and for the most part, no rewards programs. However, this can be of benefit to you if you are new to credit, as it allows you to focus on spending only what you need to spend, to then pay off what you owe before interest starts accruing.
Why choose a student credit card?
Applying for a student credit card can provide any number of benefits. First up, if this is your first credit card, you can use it to learn more about credit and the way in which credit cards work. You can learn to spend within your means, to then pay off all purchases made on the card before interest is applied.
As student credit cards tend to have lower credit limits, this can prevent you from getting into too much trouble. While some credit cards have credit limits in the thousands – and sometimes tens of thousands – of dollars, student cards keep that spending limit much lower. So, while you may occasionally spend more than your means, the potential for overspending is limited.
Obviously, a student credit card also provides access to credit. That’s what credit cards do. Making everyday cashflow somewhat easier to manage, your student credit card could provide a way to cover expensive textbooks or travel passes that you may not have money to cover up front, to then pay it all off when your monthly statement is due.
When used correctly – and when you choose the right card – student credit cards have the potential to help you save money. You may have interest free days on purchases. You may also have no annual fees. And while most student credit cards keep it fairly basic, you may have access to handy features such as those offered by Visa and Mastercard.
Last on the list of reasons why you may want to apply for a student credit card is the ability to build your credit. If you have not held a job for that long, or if you’ve not had credit previously, your student credit card could help you build your credit history to make it easier to apply for credit cards and loans in the future.
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.
When using the card, you can use it to make purchases instore and online. 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.
What should you look for in a student credit card?
As you start comparing student credit cards, there are some very important things to keep an eye out for. By comparing these factors, you should be able to find the card that best suits you and your spending style.
- 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.
- 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.
- Low 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.
What else can a student credit card offer?
When you compare student credit cards, there are several important factors to keep in mind. Aside from the card’s annual fee and interest rates, you should also keep an eye out for these handy features:
- 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.
- 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.
- Complimentary extras: 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.
- Rewards: 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.
- Other features: 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.
What should you avoid?
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 cashflow, 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.
Student Credit Cards - Frequently Asked Questions
- Low or no annual fees, meaning your only potential expense is interest payments
- Low interest rates, meaning you don’t pay as much as other credit cards
- Low credit limits, reducing the opportunity to overspend and get into debt
- Basic card, keeping it simple
- Opportunity to build credit
- Access to credit, even when you have no credit history
- Fewer features or benefits than other more expensive cards
- Typically no rewards program, or a less lucrative one than other cards
- Introductory offers may entice inexperienced cardholders, who then get into trouble after the offer ends
- Choose the right card: Compare the options using CreditCard.com.au, 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.
- Create a budget: 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.
- Set 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.
- Use your card only for the 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.
- Keep track of your spending: 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. However, if you 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.
- 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.
- Pay as you go: 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.
- 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 backup – and paying too much in interest if you can’t pay it off right away – work on creating an emergency fund instead.
- Don’t get in over your head: 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.