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Should I get a credit card as a student?
When you head off to university, it’s likely to be the first time you’ll have lived away from your parents. It’s probably also the first time you’ll have financial independence – apart from the odd grocery shop being paid for when you come home, of course! This could get you thinking about your credit history and it will say about you when you come to borrow in the future.
Quite probably, your credit history won’t really show very much about you at all if you’ve never borrowed anything – and as you can’t get credit before you are 18 for most students this will be the case. That’s why you might be considering taking out a credit card, which will help you start to build a positive credit history – provided that you use it responsibly. But is this a good idea while you’re a student?
Of course, the primary function of a credit card is to enable you to borrow money to pay for something and then spread the cost by repaying over a number of months. If you repay what you’ve borrowed over a few months then you’ll pay interest on what you owe for that time too. A side benefit of using a credit card responsibly, however, is that it will show on your credit report and – providing you stick to your repayments – help you to build a positive credit history.
Whenever you take out any sort of credit agreement – a loan, overdraft, credit card or a mortgage – the lender will take a look at your credit history with one of the three credit reference agencies: Equifax, Experian or CallCredit. They’ll make their decision on whether to lend to you or not based on this and the information on your application. If you’ve not really got a credit history to speak of, because you’ve not used credit before, they may be less likely to accept your application. This is because they won’t be able to tell one way or another how well you can manage credit, so lending to you could be a risk.
That’s why you might want to think about taking out a credit card to build your credit history. However, if you’re thinking of doing this as a student, there are a few things you should keep in mind.
What to look out for
Obviously the main thing to consider if you’re thinking of taking out a credit card as a student is that you don’t want to get into debt, particularly as you’re unlikely to be earning much money or have much income. In fact, if you’re not earning at all, it’s likely that the majority of credit card providers won’t accept you. This is because there’s usually a minimum income requirement for you to be able to take out the card, to make sure you’ll be able to afford to make repayments.
Even if you’re earning money from a part-time job, you could still have problems finding a credit card that will accept you. That’s why it’s a good idea to opt for a card that will let you do a ‘soft search’ before you apply, so you can see if you will be accepted, as this doesn’t show on your credit history. If you make a lot of applications for credit in a short space of time, lenders will see this on your credit history and could turn you down as they may think you’re desperate for credit. You can find out if you’ll be accepted for the Ocean Credit Card before you apply with QuickCheck – read more about this here.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender
If you’re taking out a credit card as a student, it is important not to borrow more than you can afford to pay back. Clearing the balance in full every month will ensure that you don’t pay any interest on your borrowing and will show up as a positive on your credit history. You should avoid withdrawing cash on your credit card – you can be charged a withdrawal fee of up to 3% for doing this and you will always pay interest on cash advances even if you clear your balance in full on the next payment date.