The debate of whether a student can take up the responsibility of a credit card or not has been an age-old one. However, both sides have their own opportunities and obstacles and are equally arguable. If you are a student and wish to get a credit card, there are a number of things you need to consider before you jump right into it.
Credit card companies often offer enticing benefits on credit cards to lure you into hastily getting one without careful consideration. Nevertheless, if you opt for a credit card after having gone through all the pros and cons and apply a sound financial strategy to help you manage your card, you have nothing to be worried about.
Students can apply for student credit cards that do not have any income limit for eligibility. These credit cards generally have interest rates that are comparatively lower and a repayment period that is valid for up to 5 years.
Let us first understand why having a credit card is beneficial for you as a student:
Helps Establish Credit History
Your credit history is like a school report card that helps you keep a track of how far you’ve come. A clean credit history will help you see how you’ve been keeping up with your credit card payments and if you need to make any changes in the way you handle your debt. Additionally, getting a credit card at a young age can help you gradually build a good credit score which will ideally establish a spotless credit history.
Helps in the Management of Debt
As a student on the verge of stepping into adulthood, you tend to want to experiment and learn from your experiences. Managing debt is a skill that is extremely important for any individual to cultivate. Making an effort to learn how to manage your debt right when you’re in college will help you in the long run. If you manage credit card debt it will boost your credit score and add to your credit history.
Helps Make Secure Transactions
Credit cards are one of the most secure modes of payments since they not only provide safe transactions but also offer protection against fraud. If your credit card is lost or stolen, you can immediately report the incident to your credit card issuer and be exempt from paying for any transactions that were done without your knowledge. You will not be held liable for any unauthorised transactions done through your credit card thereby saving you from paying for the loss from your own pocket.
Although student credit cards can be beneficial, you must be prudent about the way you use your card.
Here are a few tips and considerations that might help you manage your credit card better:
Get a Lifetime Free Credit Card
As a student you must aim to prolong the use of your credit card for as long as you can, preferably a lifetime, to build your credit. Therefore, it is advisable to get a lifetime free credit card that will not charge you any annual maintenance fee, but will give you all the perks of a credit card. Credit cards for students do not generally have a joining fee and often have a really low annual fee which can keep you from bearing any additional costs.
Make Timely Payments
The importance of making timely payments cannot be stressed enough. In order to refrain from falling into debt, you must make it a habit to keep a tab on your credit card due dates and pay them off diligently. It is also wise to pay more than the minimum amount suggested to help keep up your credit score.
Opt for a Credit Card with a Lower Credit Limit
As a student, handling a credit card can be quite overwhelming. That is why it is better to opt for a credit card that has a lower credit limit so that you can pay it back without much strain. Most student credit cards offer a credit limit of ₹15,000 which is just enough for you as a student to be able to handle your expenses without descending into crippling debt.
Spend Only within Your Limit
This applies both literally and metaphorically. Avoid going over the provided limit and only spend as much as you can afford to pay back. Credit card issuers are well aware of the risk they’re taking by providing a credit card to a student who has no substantial credit history. Which is why the interest rates on credit cards post the completion of the introductory annual percentage rate is generally higher. Additionally, late payment penalty will be applicable if you pay your dues post the grace period. Therefore, be careful with the way you use your credit card and abstain from going overboard.
Plan Your Budget
Planning a budget will help you stay on track and not lose sight of your financial goals. Budgeting makes it easier for you to cut down on needless expenses and avoid going down debt lane. You can exploit your cashback rewards by using your card for transactions that you frequently make at merchant stores. This will help you accrue rewards and gain massive cashbacks on your purchases.
Maintain a Low Rate of Credit Utilisation
A low credit utilisation rate implies that you have made smart purchases using your student credit card. The key is to utilise only 30% or below of your total credit limit to maintain an impressive utilisation ratio which will indicate you are capable of handling your credit card in a sound manner. This will in turn boost your credit score and lead to added benefits such as higher credit limit and additional rewards in the future.
Be Mindful about Your Cash Withdrawals and Advances
Credit cards often charge a withdrawal fee when you draw money from your card. Hence it is better if you carry out all your transactions online and pay using your credit card at merchant outlets. By doing so, you will be able to steer clear of any associated charges. Similarly, cash advances are like a form of short-term loan that your credit card company issues to meet immediate financial obligations. However they involve risk since they carry higher interest than the regular interest rate on credit cards and can be quite a handful while repaying.
Student credit cards are accompanied by multiple rewards and features at zero annual charges. With the bare minimum age eligibility of 18 and minimal documentation, they’re an excellent way for you to start building your credit. Having said that, it is crucial that you follow a hygienic strategy and make use of your card responsibly to achieve financial independence.
