10 tips for university students to know about credit cards

By Vanessa Tripodi

The start of a new school year is an exciting time for many university students in Australia. However, as you embark on university studies and experiences that will shape your career and future, do so with the knowledge that how you handle your credit cards can greatly influence that future, and even your career.

While you may think that your parents don't understand what it's like to be a university student, believe it or not, they were young once, too. By researching your student credit card options and discussing them with your parents, you can avoid getting into serious credit card debt.

Here are 10 tips to keep in mind as you contemplate which credit cards are right for you.

1. Debit cards. There are a number of different debit cards offered by all of the major banks, credit unions and lending institutions in Australia. The best thing for Australian university students using debit cards is that they enjoy all of the freedom and convenience of using credit cards without running the risk of damaging their credit ratings if they slip up. A debit card is linked to your personal bank account, with the limit of the card set by the amount of money you actually have. This means that you can use a debit card in the same way as a credit card and become familiar with the system, all without spending money you don't have.

2. Restricted limits. Before you get carried away with your spending, discuss with your parents a reasonable limit for your credit cards. A good place for your credit limit to start is the $300-$500 range, as this gives you enough money for both university essentials and entertainment expenses, while not being an insurmountable amount of money to pay off at the end of every month.

3. Low-interest credit cards. While we all strive for credit cards with the lowest possible interest rates, many people will accept a higher rate in return for points schemes and other benefits. In the case of student credit cards, a low interest rate is the highest priority as the monthly credit card repayments will be made up primarily of your interest payment, so the lower that portion, the better. Some student credit cards will also offer a low introductory interest rate, which then reverts to a higher rate. Similarly, an annual fee may be waived for the first year and then charged in the future. This is why it is important that both you and your parents read and understand all terms and conditions.

4. Usage review. Parents may also want to make sure they regularly review their university student's credit cards usage, especially around peak spending times like Christmas. This allows parents to see whether their young people are staying on track with their credit cards payments and spending, and whether their credit limit should be reduced, or even increased.

5. Bailout plan. Some university students may need their parents' permission and signature to get approval for credit cards, while others will simply ask for their advice. Regardless, as an added measure to protect your children's credit rating and to steer them away from bad debt, it can be a good idea to have a plan in place to make their credit card payments if they can't. For example, your university student may be unable to work because of illness or injury. To avoid their children defaulting on credit cards and getting into serious debt trouble, parents may have an emergency fund set aside, or the student may have emergency money of their own.

6. Peer pressure. Be discreet about the fact that you have credit cards, what the limits are, and how much you use your credit cards. Tell a few select friends how you have been managing your money since going to university, but make sure not to be pressured into ordering round after round of drinks at the bar or paying for expensive tickets or meals just because your friends think you can afford to put it all on your cards.

7. Understand credit. Make sure you are clear from the first time you use your credit cards that you are spending on credit. That means the money has to be paid back, usually with interest. When you remember this, you will be able to make smarter purchasing decisions and stay diligent about making payments on your credit cards.

8. Understand your credit rating. It can be easy to forget about future responsibilities when you are in university, but your credit card spending habits can affect your credit rating down the road. If you regularly default on credit card payments or go over your credit limit, you are setting yourself up for a bad credit score. Take the time to discuss with your parents the importance of a good credit report for when it comes time to buy a car or a house, or even to follow your career. Employers have been known to turn job applicants down because they had bad credit.

9. Credit card security. Always make sure you carefully guard your credit card PIN number and use it only on secure websites for online transactions. Even someone using your credit cards fraudulently can ruin your credit rating.

10. Budget. Write out a detailed budget and spending plan that takes into account all of your expenses for a week, fortnight or month. This allows you to see how much money comes in, where it goes out, and whether you really do have enough to make regular credit card payments as you approach your credit limit.

Article by Vanessa Tripodi

Published: July 10, 2009