Credit cards can be a boon for students who often find themselves strapped for cash. A credit card can tide you over when you need to make an urgent purchase, but your parents are yet to give you money, or if your scholarship will arrive later. You can apply for credit cards to handle such conditions.
In another scenario, you can put the basic building block for your solid financial credit history in your student life. Students may have a limited credit history or no credit history at all. Therefore, student credit cards are designed in a way that helps them in building their credit history. Join the credit card community with student cards offering small credit limits. It helps you create a bridge toward more valuable future credit products in the future. Banks want loyal customers for life. You can be their loyal customers just when you begin your college life.
Different cards are available with banks with various features. Students should choose a credit card that complements their lifestyle and requirements. Look for a card that benefits your student-specific lifestyle, like zero annual fee, travel benefits, redeemable rewards points at certain online stores to buy textbooks, cash backs, and late-pay relaxation. It should also provide a variety of options to redeem reward points.
Let us explain four primary factors a student should consider while applying for a credit card:
– The Annual Fee
Credit card issuers charge an annual fee to cover benefits offered on credit cards, like shopping or travel perks. More benefits on a card charge higher fees. Students can search for credit cards without an annual fee. If you can pay your credit card bill in full every month and are sure that you will make the most of the perks, you can consider applying for a card with an annual fee. However, it may be difficult for students to qualify for these cards as they are new borrowers.
– The Rate of Interest
There is a chance that students might carry forward the bill balance to the next month, which makes the interest rate the most important factor to consider. Look for a card issuer offering student cards comparatively with a lower interest rate. There can be a wide disparity among those offered credit cards. Ideally, one should pay the credit card bill in full on or before the due date to avoid any interest charges. Carrying forward a portion of the credit card bill amount to the next month will attract interest on this amount. If you cannot pay the entire bill, pay the maximum amount possible to reduce the interest charge. Hence, a higher interest rate can hugely add to your total balance, making it tough for students to repay their debt.
– The Incentives
You should consider your spending habits and look for a card that can offer you the best. Some card issuers offer cash-back as incentives, while others may offer rewards on student credit cards for timely payments. Look at such incentives and choose the one that you can utilise the most. If you need to travel frequently, look for travel rewards on student credit cards.
– Fees and penalties
Fees and penalties are given in the fine print of the issuer. You can find some cards waiving off any penalty fee for the first year, along with the annual fee. Consider what they will charge after the first year of card issue.
Also, you can compare the credit limit available on different credit cards for students. Make sure you read and understand the terms and conditions of the credit card issuer. If you find it difficult to get a credit card, you can apply for credit card with a co-signer – your parents. Also, they can request the bank to assign a credit limit from their credit card to your student card.
How to use your card wisely
- What you need to ensure is careful management of your credit card, as mismanagement can entangle you in debt. Carrying a balance doesn’t help you build a credit history.
- Students can apply for a secured card. The card issuer will require a minimum security deposit to approve your credit limit. Your card limit is equal to the amount of deposit money. These cards will help you develop the habit of timely repayment. It is a good way to establish a credit history and increase your credit score.
- Another important aspect is to not use up all of your credit limits. It will assist in securing a good credit score. As per a general rule of thumb credit utilisation ratio should be less than 30% of your credit limit. Lenders consider this ratio important while determining your creditworthiness.
In a nutshell, students should check the charges before applying for and spending on their credit cards. It is best to inquire about the interest rate on the outstanding balance. Be aware of the annual fee and the ways to earn and redeem reward points on credit cards for students. Such knowledge can help you to use your card efficiently without undue expenses or penalties.