How to choose the right credit card as a student

If you’re a student, a credit card could be a great way to manage your cash flow and start building up a good credit history. 

A credit card with interest free days, could allow you to borrow money to pay for purchases over a period of time, as long as you are mindful that the lender will charge you interest if you don’t pay what you owe in full each month.

Below, we’ll take a deeper look at what you need to know about credit cards as a student, to help you decide whether one is right for you. 

What is a credit card?

A credit card is a revolving line of credit. This means there is no date when your access to the credit "ends" – unlike with, say, a personal loan or car loan where you usually have a fixed amount to pay off over a fixed period of time.

Your card provides access to a certain amount of money (a “credit limit”), which you can use (your “balance”), and then repay at the end of your billing cycle (usually a month). If you pay off your entire balance by the due date, you can avoid interest on purchases (through a feature known as "interest-free days”).   Be careful though if you use the card to withdraw cash as you will be charged interest on any cash advances and may also be charged cash advance fees.

If you don't pay the card off, you are charged interest on the balance.  If you are responsible with your credit card and pay it off each month, you can build your credit history to show future lenders that you can be responsible with money. A strong, established credit history can work in your favour down the track if you decide to take out a car loan or buy a house. 

How does a credit card work?

As a student, you could use a credit card to help with uni expenses, emergency costs or to buy all your textbooks at once and then pay them off over time. You can also use it for any other shopping you want to buy now and pay for later – but the key is to make sure you meet the repayment requirements. 

Each month you’ll receive a statement outlining the minimum repayment you’re required to make. This payment will typically be around 2-3% of your outstanding balance, and you’ll need to repay it by a due date that’s listed on your balance to avoid excessive interest costs and late fees. 

Of course it’s best if you pay off your card in full each month so you can pay no interest at all. 

What fees are involved?

The cost of a credit card depends on the type of card you choose and how you use it. Below are some of the main fees to consider:

• Annual fees. Shop around for a card with a low or no annual fee. Make sure you aren’t paying a high annual fee for a rewards program, or credit card perks that you won’t use.
• Purchase rate. If you have a card with interest free days and you don’t pay off your card in full, the purchase rate is the standard interest rate that applies to any purchases you’ve made on your card. This could generally range from 11-22% p.a. (per annum). The lower the purchase rate, the better.
• Cash advance rate. This is the interest rate for transactions that are equivalent to getting cash, such as ATM withdrawals, some bill payments and gambling. (PS It’s a really bad idea to gamble using your credit card!) 
• Cash advance fee. If you use your credit card for a cash advance, you’ll also be charged an additional fee of around 2-3% of the amount you use for a cash advance. 
• Foreign transaction fees. Most card retailers will charge a fee if you use your card overseas (including online with some retailers based overseas). This fee is generally around 2-3.5% of the total transaction amount. 

How do I apply for a credit card as a student? 

You can usually apply for your card either online, over the phone or through a bank branch, but you’ll need to meet the eligibility requirements beforehand. The bank will take into account the following factors:

• Your age. You will need to be at least 18 years old. 
• Your residency status. Usually you need to be an Australian citizen or permanent resident, but if you're an international student, call the bank first to discuss options – some providers may consider applications from people on specific visas.
• Your income. You’ll need to be earning enough and have adequate surplus income to be able to qualify for the card you apply for. Your income could include earnings from a full or part-time job or a Centrelink payment but it’s important that you speak to your bank first about what they’ll accept.
• Your credit history. For many students, a credit card is their first credit product, meaning they won’t have a reliable credit history, meaning they won’t have many details in their credit file. The provider will still perform a credit check to see if there are any blemishes like late payments or overdrawn accounts – and your application will become a part of your credit history. 
  

Tips for using your credit card 

A credit card is a big responsibility. It’s important you manage it correctly to prevent racking up debt and damaging your credit history - which can follow you around for a long time. 

Only use your card for essentials

It may be tempting to use your credit card to splurge on items like clothes or concert tickets – especially if you’re a week out from payday. But this is how bad money habits start to form. Instead, try and save your card for essential purchases that you haven’t been able to budget for, such as laptop repairs. 

Repay your balance in full each month

Although you only need to pay the minimum amount each month, this can still result in high interest costs and debt. Instead, aim to repay your balance in full each month. Tip: You can usually set up automatic payments from your Australian bank account, just like you would for electricity bills or Netflix.

Pay as you go

You’ll get your credit card statement around once a month, but it’s up to you whether you pay it off more frequently. If you get paid every two weeks, for example, you could make a payment on your credit card as soon as you get that money in the bank. This strategy will help you to pay your balance off each month and can reduce the amount of interest you pay. 

Getting a credit card as a student is a big decision. You’ll need to ensure you can manage it properly and keep on top of repayments to prevent accruing debt. But if used correctly, a credit card can be a great way to build your credit history, manage your cash flow and be prepared for emergency expenses.