Student Credit Cards Explained – Forbes Advisor UK

It’s a universal truth that money is extra tight when you’re at university – and that some form of borrowing is usually necessary. But how you manage debt as a student can have implications for your financial future and should not be taken lightly.

A student current account is always a good first port of call as it offers an interest-free overdraft up to a certain limit for every year of your studies. You may also take a Maintenance Loan to pay for living expenses, alongside a Tuition Fee Loan to cover the cost of your course.

However, there are some kinds of borrowing to avoid at all costs when you are a student – and near the top of the list is student credit cards.

Student credit cards

While credit cards might seem like a quick and convenient way to get access to cash, unless you religiously repay the full amount you have spent on the card every month, they can soon become cripplingly expensive.

Take a credit card that charges typical interest (Annual Percentage Rate or ‘APR’) of 18.9% (variable). If you have a £ 500 worth of debt on the card and make the typically-required minimum payment of 2.5% (or £ 5), it would take 12 years and one month to clear the debt, and cost £ 504 in interest alone – more than the amount you originally borrowed.

If you miss a payment – or perhaps there was not enough money in your account to pay a direct debit you have set up – you’ll also be charged a late or missed payment fee of around £ 12.

Worse still, you can damage your credit score. And this can negatively impact your capacity to borrow in the future – from a mobile phone contract through to a mortgage.

However, while they are a bad idea for long-term borrowing, there are advantages to a well-managed student credit card. It can be good to have a credit card in your back pocket for emergencies, for example. Or, if you spend on your card and clear your balance every month – which means you won’t be charged interest – you can build up your credit score, which can actually help with future managed borrowing. If this is your plan – and you can manage the card responsibly – how do you go about getting one?

Credit cards with student bank accounts

The easiest way is through the bank or building society that is providing your student current account. That said, only HSBC and TSB are offering credit cards as part of their current account package this year.

HSBC’s student credit card comes with an APR of 18.9% (variable) and a credit limit of up to £ 500, while the TSB card charges an APR of 21.95% (variable) with a potential credit limit of up to £ 1,000.

Again, if you spend on your credit card and don’t pay it off in full, interest charges will rack up quickly. If you borrowed £ 1,000 on the TSB card for example, and repaid £ 20 a month, it would take you nine years and one month to repay the debt and cost you £ 1,162 in interest.

You’ll need to apply separately to the bank’s current accounts and acceptance will be subject to factors such as your status, income and having no history of bankruptcy or County Court Judgments (CCJs) against you for previous non-payment of debt.

Other student credit cards

You might be able to qualify for a credit card elsewhere as a student but, as you have no track history of borrowing, these deals tend to be expensive.

Providers such as Ocean Finance and Vanquis for example – which cater for applicants with poor or limited credit history – might accept your application but charge APRs of 39.9% and 59.9% (variable) respectively.

Cards like these also come with smaller credit limits than standard credit cards – usually between £ 200 and £ 1,500.

As a student you won’t be offered a deal with any 0% interest promotion that are reserved for borrowers with a good track record of borrowing.

Frequently Asked Questions (FAQs)

How do I apply for a student credit card?

You can use a comparison website to compare credit card deals or go directly to the provider’s website.

Either way, you will be put through an initial ‘eligibility checker’. This will run a ‘soft check’ on your credit score to show you how likely you are to be accepted for a particular credit card, without leaving a mark on your credit file.

It means lenders you apply to for credit in the future won’t see where you could have been refused credit, and allow this to influence their decision.

If you’re happy to apply for the credit card after using the eligibility checker, the lender will then carry out a ‘hard check’ on your credit file. If you’re applying online, you’ll find out straight away if you’ve been successful.

When will I get my card?

What if I change my mind?

What happens to my student credit card once I graduate?

Will taking out a student credit card affect my credit score?

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