Handling a Student Credit Card

When students get their first credit card, it can be a liberating experience. The purchasing power that comes with even a low spending limit, like with a student card, can be enough to send the card holder on a shopping spree. At the very least, many new users begin employing the card on any and every essential product or service that they need, be they clothes, food, or textbooks. But most student credit card holders do not reflect the behaviours of more experienced holders: Purchases add up very quickly, and with the likelihood that a student card has a low credit ceiling and a high interest rate, those new cards can max out before the user knows it.

To combat this, as well as to establish a good credit history, borrowers who obtain student credit cards should observe a few simple rules of credit card maintenance. These apply to all card users, including long-time holders, but they are especially apt for student cards.

• Essential items only. Unless that new CD or movie is needed for a class assignment, it is best for the student to pass on the purchase. The rule of thumb is to use the card for essential items only. Even in the cases of essential items, students should be advised to forgo the use of their cards unless the amount is more than they can pay in cash.
• Cash on everyday items. Similar to the essential items only rule, students should pay cash on items that are considered common or every day. Items like toiletries, groceries, or petrol purchases should be relegated to the student’s debit card or cash from their pocket. Charging these things to the credit card will not only bring them closer to their limit, but the interest they will pay on such items effectively results in a much higher price per item than they might realise.
• Budget. One of the most helpful tips a student can receive is to budget their monthly expenses. They should determine what days each month they will get paid and then what items will need to be purchased with funds from the most recent cheque. Budgeting for special purchases can help, too, as these will likely need to be paid with the card. By budgeting, students can ensure they have money on hand to repay their balances each month.
• Pay the full balance. Students, like standard credit card users, will get into trouble even quicker if all they do is pay their monthly minimum instead of repaying the full balance. By not paying off the balance every time, interest will continue to accrue. Not only will the student’s available credit keep shrinking month after month, but they run the risk of the provider increasing their interest rate. Additionally, the chances of incurring an overdraft on the account rise as higher balances are carried over each month. Should an overdraft occur, the student’s rates will almost certainly increase and their spending power could potentially decrease.
• Set an entertainment budget. Budgeting for pleasurable activities is also a wise move. Without it, the temptation to use a student credit card on a spontaneous trip to a restaurant or theatre will be too great. Students should think of this budget as a safeguard against superfluous use of their new credit line.