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Managing credit for students

Credit and students

One of the best investments many of us will ever make is improving our skills and qualifications. It can give you a financial head start that lasts a lifetime. And though it may mean living on less for a few years while you undertake your studies, research has shown that the qualifications gained from college or university will leave you well-placed to earn a decent income during your working life.

The downside of tertiary study is that it often means putting off earning a decent pay cheque for a few years. That’s where credit can be useful – helping you through the lean times and providing the foundations of a credit record that will certainly make life after graduation a lot smoother.

Gain experience with credit

Having an established credit record can make the leap from college or university to the real world a lot easier. Without a credit history you may be seen as more of a risk to credit providers – including utilities like phone and electricity companies. So something as simple as turning on the lights in rented accommodation can be more difficult if you don’t have a credit history.

Bear in mind that saddling yourself with large debts at a young age can limit your ability to do all the things you want to achieve – like travel, before you settle down. Limit yourself to small amounts of credit that you can manage comfortably.

Use a credit card wisely

If you opt for a credit card, shop carefully. Choose a no-frills card with low fees and interest, and keep your credit card limit low.

Credit cards don’t give you more money - even though it may feel like it. But they do change is the way you pay. Using a credit card is like taking on a loan – one that is repayable with interest. Unless you pay off your card in full each month, you will be charged interest on the outstanding balance. This interest charge can add substantially to the cost of your purchases, and quickly lead to a debt blow-out.

As a student, you should aim to build up a strong credit repayment history - not a big debt. By sticking to just one card – rather than accumulating several, chances are you’ll achieve what lenders are looking for: A healthy record of on-time payments.

Keep up regular repayments

Making regular payments is important, not only for avoiding fees, but for keeping your credit history healthy. Some people think it’s better to save up for a few months and then pay the card balance off in full. But nothing could be further from the truth. For every month you don’t send in at least a minimum payment, a bad mark appears on your credit report—even if you pay your balance in full the next month.

Don’t regard the minimum payment as a recommended amount, but rather as the absolute minimum you must pay - and the date by which you must pay it, to keep your account current.

If you do carry a card balance from month to month, it’s still worth minimising your interest charges by paying off your balance as soon as possible. Try aiming to double or triple the minimum repayment.

One-off purchases

A low cost source of funds for one-off, big ticket items may be your student union or university or college administration. Student loans may be provided for small sums – generally up to $1,500, and most need to be repaid before graduation. Competition for them is intense and the money usually goes to students with a good academic record.

Campus loans

Another source of credit for tertiary students is ‘campus’ loans. Lenders generally offer these loans as part of a student financial package that includes account fee concessions and a credit card option.

Campus loans are quite different from traditional personal loans. Campus loans often have no loan establishment fee and the interest rates may be lower. The biggest difference though, is that no repayments are necessary until you have graduated.

The amount you can borrow with a campus loan may depend on your course of study, and in some cases, you may be asked to provide a guarantor. Be aware though, that while the repayments are deferred until your studies are over, the interest charge is not. Let’s say, for example, you borrow $5,000 in your first year of a three-year course. At an interest rate of 11% p.a., by the time you graduate the accumulated debt (including interest) will have grown to $6,840. So it pays to use these loans carefully. Borrow only what you need, and make repayment of them a priority as soon as you graduate.

Credit tips for students

Time spent undertaking tertiary studies could be one of the best investments you ever make – your ability to earn a higher income!
Use your student years to get experience using credit and build a healthy credit history.
If you cannot get – or don’t want a credit card, think about a debit card, which lets you draw funds from your own account.
Part-time jobs – especially in areas related to your studies give you a source of income and valuable work experience as well as a chance to develop budgeting skills.
Your income as a student may be limited, but start to think about short-term, medium-term and long-term financial goals.
Limit the amount of credit you use. Starting out your working life saddled with a lot of debt can limit your opportunities for travel and other experiences.
Having a credit card can give you experience in managing credit – but stick to a low limit and only have one card.
Student loans can be provide valuable funds for cash-strapped students, but use the money for essentials – like textbooks, needed to complete your course.
Let your bank know you are a student. Many will waive monthly fees on your everyday account, or offer special low-fee student accounts.
Your credit card is issued to you and you alone, so never hand your card to anyone else.