Business

CREDIT? YES PLEASE!

By Francisco Esteves ⋅ November 26, 2007 ⋅  Print this post ⋅ Post a comment

We look at how credit cards are affecting students’ lives

Credit cards. We all know what they are and most likely have at least one. But do we actually know anything about them or how they work? 0% Balance transfers, introductory offers, standard rates… All of these are terms used to describe the characteristics of the cards, but even for me, a Business Economics student, they sound like something from another planet!

With tuition fees at about £3,000 per year (well, a bit more if you take account of inflation – but Universities never mention this!), and living costs at around £4,000 a year, a student doing a 3 year course is expected to leave university with around £21,000 debt under their belt. It’s no wonder that so many look at credit cards as saviours for those bad moments. Worryingly, research published by the Post Office showed that nearly one in six students (15%) admitted to having a lack of control over their spending and not being prepared for when the bills arrive.

So what types of cards are out there? We’ll, there are three main types of cards: Standard Cards, Store Cards and ‘Specialist’ Cards. Standard cards tend to be MasterCard or Visa. They are the most common and available to anyone over 18. Store cards are probably the worst type of cards you can get. They will usually give you a (minimal) discount on your first purchase, but typically have high interest rates of around 30%, which make them an expensive form of borrowing. ‘Specialist’ cards are also aimed at students, especially those who have no previous credit history.

Regardless of which credit cards you have, providers continue to levy an amazing array of charges, which will hit you when you least expect it. These include:

• Late payments (£15- £25)
• Exceeding a credit limit (£15-£25)
• Unpaid direct debits (£15-£20)
• Copy statements (£0-£5 per page)

It must be said that not all credit cards are bad! They are good for emergencies and can help you to build a good credit record.

So, with all this in mind, here is my advice. Firstly, whatever you do, don’t be seduced into obtaining several credit cards and ‘maxing-out’ on them with a high debt load. Unless you can keep a sharp eye, one slip and your credit score takes a long-term hit! Secondly, shop around! Sounds simple but you’d be amazed the number of students who just take the first offer they get. Finally, you should particularly compare the interest rate, usually displayed as the APR or annual percentage rate of interest. The lower, the better!