Student Credit Cards: What to Know to Save £££

When you enter university, you’re not only gaining valuable knowledge in the academic setting. You’re also learning how to manage a budget and make financial decisions independently. A student credit card can be a useful tool for gaining that experience—but it can also expose you to extra debt if you’re not careful.

Here, we’ll cover everything you should know about using a student credit card. By the end of this article, you’ll know how to use a student credit card and avoid common mistakes. Let’s get right to it!

How Do Student Credit Cards Work?

A student credit card works like any other credit card for the most part. You’ll be able to charge to a certain limit, and you’ll need to make at least the minimum payment at the end of the billing period. Like with any other credit card, you should ALWAYS pay the full balance if possible. Otherwise, you’ll end up paying back costly interest.

Student credit cards do differ from most other credit cards. Some common differences are that a student credit card typically has a lower credit limit and a higher interest rate. This is because most students lack credit history, so banks and credit card companies take a greater risk by issuing them credit.

Am I Eligible for a Student Credit Card?

Eligibility requirements for a student credit card will vary by the bank and credit card provider. Generally speaking, eligibility for student credit cards usually requires that you:

• Are a UK resident.
• Are 18 or older.
• Are enrolled in a university course.
• Have income—although that may mean different things to different credit card providers. For example, some student credit cards may require that you have income from employment, and some will consider deposits from your parents or family to be income.

You’ll probably have the best luck getting a student credit card from a bank where you have a current account. This is because the bank will have better insight into how you’ve managed your money in the past.

The Keys to Success When Using a Student Credit Card

Using your student credit card wisely is essential if you want to build your credit score. To set yourself up for success, take the following steps:

• Use 25% of your credit limit at the max: Maintaining a healthy credit utilisation ratio can improve your credit score by showing lenders that you’re not dependent on credit. You can always make multiple payments in a month if you need to use your care more frequently.
• Pay your balance in full: Always pay your balance in full at the end of each billing cycle. While you can get away with making just the minimum payment, interest on the unpaid sum can grow fast. Keep more pounds in your pocket—pay your balance in full.
• Automate your payments: Late payments hurt your credit score. Set up a direct debit to pay your credit card balance, or at least set a recurring reminder so that you don’t miss a payment.

The Pave app can help you keep track of your account balances and upcoming payments so that you don’t accidentally damage your credit score. Check it out to learn more.

Related content:

How to Use a Credit Card Wisely

Understanding Credit Utilisation

Are Student Credit Cards Worth It?

Like with many financial products, there are benefits and drawbacks to getting a student credit card. Understanding a student credit card’s features and pain points can help you decide if it’s the right product for you.

What are the Benefits of Student Credit Cards?

• Build your credit score and credit history: Establishing your credit score and building your credit history during university can make it easier to qualify for other credit products after graduation.
• Low fees: Most student credit cards don’t have an annual fee. This means that if you’re a savvy card user, you can get all the benefits of a credit card without paying a penny.
• Consumer protections for your purchases: When you make a purchase of over £100 on your card, it’s protected by Section 75 of the Consumer Credit Act. Making purchases directly with your credit card is much safer than using point-of-sale credit providers like Klarna and Clearpay, which aren’t regulated by the FCA.

Depending on your credit card provider, you could also see benefits like interest-free introductory periods and rewards or cashback for purchases.

Related content:

Does Klarna Impact Your Credit Score?

Does Clearpay Affect Your Credit Score?

What are the Drawbacks of Student Credit Cards?

• High interest rates: While this is definitely a drawback, try to think of it as an incentive to develop the habit of paying your balance on time and in full.
• Low credit limits: As we mentioned earlier, banks keep credit limits on student credit cards low to minimise the risks they face. Fortunately, using 25% or less of your credit limit will help you qualify for a card with a higher credit limit after graduation.
• Costly charges for ATM withdrawals: You should avoid making ATM withdrawals with your student credit card unless it’s absolutely necessary. Plus, when you use cash, you lack the protections that credit cards provide.

Should You Get a Student Credit Card?

As with any financial decision, be sure to consider your own circumstances before applying or signing up for a student credit card. That said, a student credit card can be a valuable stepping stone for building your credit score and developing your personal finance skills.

If you’re confident that you’ll be able to use 25% or less of your credit limit and pay your balance in full each billing period, a student credit card could be a great tool for you. However, if you’re not so sure you can do that, you may want to consider other options.

Do I Have Options Other Than Student Credit Cards?

If a student credit card isn’t right for you, consider the following tips:

Use a Student Current Account with an Interest-Free Arranged Overdrafts

Many students apply for a current account with an arranged overdraft. These accounts typically don’t charge interest, so they’re a great choice for students who aren’t confident they’ll be able to pay their balance in full each month.

To learn more about student current accounts, check out our complete guide to the best student bank accounts of 2023.

Keep Your Credit File Healthy

Even if you’re not actively using credit, there are ways to improve the likelihood that you’ll be approved for a credit card after university. Here are some things you can do to maintain a strong credit report:

• Register to vote: Getting on the electoral role confirms that you are who you say you are. This makes lenders more comfortable lending to you if you eventually apply for a credit card.
  
  
• Pay all your bills on time: Late payments can hurt your credit score, even if they’re not related to a credit product. This is because lenders will use this information to judge whether you’re a reliable borrower.
  
  
• Download the Pave credit builder app: Pave can help you avoid missing payments, help you gain a deeper understanding of key credit concepts, and even help build your credit score with our credit line.
  
  To see for yourself why hundreds of thousands of Brits have downloaded Pave, head over to the App Store or Google Play now!