For most university students, credit cards aren’t high on their priority list for things to take care of – after all, students with loans can pay for things with direct debit from their bank accounts, as can students that are being assisted financially by their parents.
The simple truth of the matter is that most students don’t think about credit cards, so that when it gets to the point that they need one, they end up rushing through the selection process, ending up with a card that isn’t optimal for their needs or worse one that actually ends up being detrimental for them in the long run.
So what should a student seeking a credit card do? Simple, they need to research! Look at a wide variety of student credit cards, their benefits and their drawbacks. Only select one that you feel comfortable with and that you feel addresses your needs well, while not providing you with too many setbacks.
So what characteristics should you look for? Well, here are a few things to keep in mind in your search for the perfect student credit card.
Fees
Some cards charge you an annual fee for their usage; I like to counsel students to stay away from these types of cards, as usually their good points are not enough to outweigh the fact that you have to pay for them. You’ve already good tuition, textbooks, residence and many other things to worry about, no sense in adding another to the list.
Credit cards that charge annual fees are intended more for business people that spend lots of money and have lots of disposable income, not for students on a fixed budget. As a result, most cards won’t have such a fee attached to them. If they do however, consider whether you really need the benefits of that specific credit card before you sign up for it.
Spending Limits
When I started my first year of undergraduate studies, the first credit card I applied for had a credit limit of $500, and it ended up being more than I needed at the time. As I went through University and my general expenses increased, I ended up applying to have that limit raised to $1000 and adding a second card with a limit at $1500 – this was mostly just for when I bought textbooks or paid for tuition, as I wanted to get the maximum advantage out of my credit card bonus plans, but it was a good example of me getting the most out of the cards.
Incentives
Incentives are bonuses that the companies attach to their cards in order to entice more people into signing up for them. A good example of this is the “cashback” card, where a certain small percentage of what you spend on your card is refunded to you.
A credit card that was popular amongst friends of mine was the grocery card, which was given out by one of the chains of grocery stores where we lived. Instead of direct cashback, they offered a store credit that was twice the value of most cashback plans at the time, the practicality of which appealed to a lot of students.
Interest Rates
Ideally, this shouldn’t ever be a problem, as you’d be able to pay off your balance each month and thus never accrue interest on your account. Practically, however, things won’t always work out that way. Therefore, interest needs to be a concern as well.
The industry average for annual interest rates is somewhere in the 19-23% range, compounded monthly. However, being a student you should take advantages of the discounts available to you – if you do your research, you should be able to find a card that suits your needs with a student discount interest rate in the 10-15% range.
While 10% may not seem like a whole lot, if you ever lose your job, have to quit or have some other unexpected event that affects your finances, the interest can build up very quickly. One way to partially prevent this is to purposely search for a lower interest rate first.
These are the main four aspects of a student credit card that you should be examining before making your choice as to which one you need.
Ultimately, your decision should be guided by your needs at the time, and the card that you feel fulfills those needs the most. A good credit card, combined with careful spending and very strict budgeting, can actually help you as a student and provide you with benefits that you wouldn’t normally get out of your purchases otherwise.
