Students might find it hard to get a credit card of their own. Most of the students go to college directly after school and they are in teens or early 20s only. They study full time that means they don’t have paid employment.
Since they have not dealt much with finances, they don’t have any history of borrowing (maybe they have student loans). The direct implication is alow credit score.
In General, credit card providers use a person’s credit score and previous behavior to make a judgment of whether to issue him a card or not. A low score simply reflects that you can’t be trusted much for repayments. Chances are you won’t be entitled a credit card or given one with higher rate of interest.
Thus, best option for students is to use dedicated student credit cards.
Introducing Student Credit Cards
Credit card providers issue special credit cards to students with different terms and conditions. First of all, they have lower credit limit than normal credit cards so that the students don’t fall in too much debt. The limit in India has to depend on the amount of fixed deposit you have made.
Also, higher rate of interest is charged on these credit cards. That means if you don’t pay off the borrowed money in the interest free time, then you will have to incur higher charges on your borrowings.
In India, a student can only avail a secured credit card. A secured credit card is one in which collateral security has to be deposited. Leading banks like SBI, HDFC and Axis Bank allow you to open a fixed account in their banks and avail a credit card. Mind you, the limit will be 80 to 90 per cent of the amount deposited in the fixed deposit.
SBI has another term that the student must have taken an education loan from them. If you are looking forward to studying abroad then, almost all the banks have credit cards for you based on your education loan from the banks.
The main idea behind using these credit cards is to build a better credit score. Your credit card can help you develop your credit rating if you manage to clear the balance completely in the interest free period. Never spend more than your credit limit. If for some reason you cannot make a full payment, then you should consider making at least the minimum payment. Never miss any payments that you have to make.
If you keep this sort of financial discipline your credit score will witness a huge boost. Future lenders will easily accept your applications and pose more confidence in you of being a good customer.
Golden Rules for credit card holders
If you have finalized your decision of getting a credit card then you should keep these things in your mind.
- Clear the balance
If you will not be going out of budget, then you should always try your best to make full payment every month to avoid interest. If you will pay the interest then cost of borrowing will get hefty on your pocket.
- Don’t miss a repayment
You may not be able to make a full payment every time. In such a case, try to make at least a minimum payment that would save you from interest. You might want to set up a monthly auto payment from your savings account, making you always pay on time.
Maybe even the minimum amount is too much for you; consider talking to your lender about a new repayment plan. Missing the payment will not only add additional late payment fees but also would leave a bad impression on your credit report. That would affect the likelihood of you getting credit in future.
- Improve the score
We repeat it again and again; the best way to improve your score is to have good repayment history and never missing a payment. You will witness the benefits of having a great score in your future when applying for more loans.
- Don’t withdraw cash from credit card
You will incur a 3% withdrawal fee on taking out cash from your credit card. Cash withdrawal will also have a higher rate of interest than normal transactions.
That is all you need to know about student credit cards.