Student cards, credit or prepaid card?
For many young people in the UK, going to university would be the first time they've lived away from home. Amongst other things, this means they'll have to manage their own finances and make all spending decisions.
A number of these students feel that they'll need a card that they will use for day to day purchases,
often it's a credit card, but as shown below, a credit card is not always the right card to go with to university.
The case for a credit card
1. If aiming to build a credit history
Credit history is important for many things, including loans, mortgages, car loans etc.
these are things that the average person will need at some point in their life.
It is a good idea to establish a good credit history in case you need it in the future.
Using a credit card while at university enables you to build that credit history well in advance, provided you manage the account well.
2. If the student can control their spending
A credit card makes money available to borrow on the spot, to a young person who isn't used to the concept of loans and
the responsibility of paying them back, this might seem like money they have. Such a person is likely to use the credit card
without contemplating how they will repay the money.
Other young people will recognise that it is borrowed money which they'd have to pay back in case they used it, therefore they'd be able to control how they use their card.
A young person who cannot control spending is better off avoiding credit cards even if their aim is to build good
credit history; mistakes such as going over the limit or missed payments are likely to do the opposite.
The case for a prepaid or debit card
1. Cannot keep to strict deadlines
As long as there is an outstanding balance on a credit card, the cardholder is required to make a payment every month,
the date on which to make the payment can change from one month to the next. A young person who isn't attentive enough
can easily miss payment deadlines, which leads to a penalty fee and if repeated may also ruin their credit rating.
Rather than risk spending money on unnecessary fines, it might be better to use a debit card or prepaid card; both cards function similarly to credit cards, in addition; a debit card with an overdraft will allow the student to borrow money without strict deadlines.
2. The money is available before it needs to be spent
If the money is always available before the student needs to spend it, there's less of a need to use a credit card,
since debit cards and prepaid cards can be used for most things a credit card is supposed to be used for.
If the student wants to use the credit card as a means of building credit history, the risk can be reduced by keeping
the credit limit very low and ensuring that the balance is always paid off a few days after the card is used.