Credit Tips For Student Credit Card Holders And Their Parents
Posted September 7th, 2009 and last modified March 5th, 2013
It is a common fact today that students have credit cards. The percentage rate of students with credit cards is over 80% and in fact many have more than one card.
If you have one or plan on getting a student credit card shortly it would be a good idea to read the following information:
- One of the main reasons that students drop out of college is the fact that they have run up financial debt
- Student life is memorable but can be very costly and has to be managed on a low income. Your college debt needs managing or you will end up starting your adult life strapped with debt or with a bad credit rating
- Entering your adult years is a time when you need to change from being dependent to becoming independent and learning to manage your finances is one of the greater steps you will have to make. The sooner you learn finance management the better your life will be.
Student Credit Card Offer
If you are planning on getting a student credit card then the ANZ First Visa is an excellent choice. This card features a low annual fee each year plus the option of a low $1,000 credit limit so that students can always keep 100% in control of their finances. Also with the flexibility to add up to 3 additional cardholders for free, parents can monitor their child’s finances. Visa Entertainment gives you access to special events.
- $30 p.a. annual fee
- 19.39% p.a. on purchases
- 0% p.a. for 9 months on balance transfers
- Cash Advance Rate of 20.99% p.a.
- 44 days interest free
- Minimum Income Requirement of $15,000 p.a.
Why do you think students are bombarded with credit card information at every turn? It is because they are on a low income and will need to spend, but also because if a credit card company can gain their loyalty at an early age, the card holder is more likely to stay a client in later years. They will engage in upgrades and also have home loans at a later date.
Student credit cards are a source of income for credit providers as well. The students are often not very good payers and because of this the banks make money on anything from the interest due to unpaid balances, over limit and late payment fees. Students make profitable clients.
It always used to be thought that a person with a high income was the ideal credit card owner, but that is no longer the case.
Banks now prefer customers who cannot pay their full balance at the end of each month and who have what banks call a revolving debt (a debt where the full balance is not paid each month). Use the example of the student with a credit card balance of $7,000 at an interest rate of 18.9%. If this student faithfully makes the minimum monthly payment of 3% or $25 – whichever is higher, and does not charge anything else to the account, it will take more than 16 years and $7,173 in interest fees to repay the bill!
Student credit cards are very useful for students if they learn to use them responsibly. Students can save quite substantially by purchasing their text books and supplies online using a credit card. Also it is a feeling of security for them because they can pay for emergency expenses like car repairs, car hire or medical emergencies. Using a card wisely at this stage will hone skills in financial management.
If a credit card is your first experience of credit then you have now created yourself a credit report. When a person makes an application for a credit card their details are listed in the credit bureaus and they will be there for life. The use of a credit card is recorded on these reports and it is from here that a credit rating evolves. Credit history is recorded in accordance with your repayment ability, the number of cards you have, if you go over your credit limit or default on repayments of any sort.
Your credit history plays a vital role in your financial career and many students do not realise that if they do not keep their credit rating high it can affect their post university career when they may need to borrow to buy a car, a new wardrobe, tools for their career and such like. If a person is going for a job involved with finance a credit report will be obtained and if it is not good it could affect the job application success.
Addressing your credit expectations
One fallacy that affects many students is the fact that they think a degree is immediately going to march them into a top paying job. Those days have long gone for most college graduates. More often than not college graduates have to start at the bottom of the ladder just like everyone else. The difference could possibly be that they will probably climb the ladder quicker than some others. It is the belief that a great income is going to be immediately available after graduating, that leads many students into spending randomly during their university years and not addressing their debt problem as they go.
Most post graduates will have to find some money to prepare to present for a job, or may have considerable expenses to set themselves up for a new career. If they have put themselves in the position of having a bad credit report they will severely hinder the start to their career.
Before rushing out and spending up big on a credit card, students need to be realistic about their take home pay after graduating, and what their expenses are going to be ‘in the real world’. It would be a good idea to do some research in their chosen field and find out what people are being paid and how much it is costing them to live. Allowances need to be made for taxes, repayment of student loans, living expenses and possibly further education.
Facing reality
One factor that is very true is that university students find it hard to adjust to their life as an adult. Most teenagers who leave home suffer from this to some degree and still want the trimmings that they have at home but the reality is that it has taken years for parents to accumulate the ‘niceties’ they have around them and students who are usually on a lower income find that a credit card will pay for these extras like big mobile phone bills, the movies, clothes, etc. until they run out of credit. This is when the reality really hits home when they can’t pay their bills.
Students share their experiences:
Heather recommends that a student should only have one card with a low limit. ‘This limits the amount of credit you have access to and therefore removes the temptation to spend more than you have or more than you can pay off immediately.’
Another student recommends that you check out the cards very carefully before signing up. ‘Don’t sign up for a card that charges an annual fee to use it and read the terms of the card before applying. You wouldn’t believe how many people don’t know that an APR rate is.’ The abbreviation APR is used for Annual Percentage Rate and when choosing a credit card it is very important that you understand this as they vary a lot and make a lot of difference if you are paying off a credit card balance.
Some advice for students regarding credit cards is the following:
Learn about your finances. Your whole life you will have to deal with finance matters so the sooner you start the sooner you will understand how to keep your finances under control. It could be an elective you take so that you can prepare yourself with financial knowledge to help with your career
Find a source that you can talk to. It could be a finance counsellor, a family member who shows finance skills or someone who you see handling their financial goals
If you have had a habit of spending for enjoyment, find other ways to entertain yourself. Universities have lots of clubs and groups that you can become associated with where you will find enjoyment and meet people with similar interests
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