There has always been a debate whether students in the tertiary education system, usually entering their adulthood, should have access to credit cards or not.
While some financial experts and parents are rightly concerned about the possibility that young adults may run into debt problems, the truth is that if students can learn to use their cards smartly from a young age, they may manage to establish a credible and solid credit history for a secured future.
As we all know, banks love prospective customers with a long-established credit history and a good score. So, if a student needs a new line of credit in the future, chances of getting an approval will improve manifold if he/she manages to use a student card wisely.
6 Obvious Benefits of Owning a Student Credit Card
A robust credit score: A robust credit score can be an asset even if many cardholders don’t realise the benefits of it immediately. A good score can help establish credibility and a life-long relationship of trust with lenders.
A student might need a loan for buying a home, a car, or for funding higher education in the future. The higher the credit score, the lower will be the interest rate offered. It would also reduce chances of rejection of loan applications.
This is important because a higher number of rejections can also hurt your credit score.
A longer credit history: The length of one’s credit history is also believed to have an impact on one’s credit score. Most banks also consider it independently during the approval stage because a history shows everything starting from timely repayments, missed payments, late payments, full or partial payments, and more.
It is ideal for risk rating and credit profiling. Establishing a credit record early means that a student gets a longer time to improve their creditworthiness.
A weapon to combat financial emergencies: An emergency can hit you any time. You may not be around to rescue your child always.
With a card, a student not only has access to debt but also liquidity. In case of an emergency, a student can use his card to withdraw money from an ATM, although it isn’t a recommended practice due to the fact that a much higher rate of interest is charged for cash advance. But, it’s certainly better than being cash-strapped.
In Singapore, students enjoy a credit limit of S$500 on their cards. This gives them sufficient cushioning in case of emergencies like flat tires, hospital admissions, purchasing daily essentials, and more.
More bang for your buck: Most student cards offer cashback, cash rebates, and reward points redeemable for gifts just like regular credit cards. Some cards also offer special discounts, dining privileges, and petrol savings. This helps a student stretch his dollars and get better value for his/her money.
Moreover, most of these student cards don’t have a minimum spend criterion. This means that you can earn rewards and benefits for every dollar charged to your card.
Better financial planning: When a student is introduced to debt products early, he/she gets a chance to take financial decisions independently, which can stand them in good stead vis-à-vis those who don’t have any experience of handling credit, in the future. They can choose a card based on their spending habits and earn exciting rewards that complement their lifestyle.
They can also decide when to rely on their card and when to use cash. This helps them form a clear understanding of how money works and why financial literacy and providence are important.
Purchase protection: Like standard cards, many student cards may also offer consumer protection benefits like online purchase protection. This provides a protection against unauthorised card usage, reduces one’s liability, and offers peace of mind.
Why Debt Traps Should Be Avoided
The importance of wise use of a card can’t be stressed enough. Students, using cards for the first time in their lives, can often get carried away.
Not only can they start overspending, they can also fail to choose a card based on its merits or their own spending habits and end up missing out on benefits, freebies, and rewards.
As discussed earlier, withdrawing cash with a credit card should be considered as the last option. If a student starts using their card for cash withdrawal, they’ll have to pay a lot more in interest. Increased debt may also increase chances of default or start a cycle of missed or late payments.
In no time, the credit score of the student will take a tumble and it can become very difficult to get it back up.
This will make banks wary of lending credit or loans in the future. Moreover, credit history may also be checked by employers or when looking for rental apartments. Having a less than desirable record might get a student disqualified.
Why Parents Need to Impart Financial Education to Their Children
Parents need to co-sign an application for a student card with their children. By co-signing, parents give official consent to their children to apply for a card and also accept responsibility for their children’s card use.
To avoid untoward incidents, its best to teach your child the importance of using a card responsibly. Talk about the pitfalls of debt and also the benefits of using a line of credit with extreme caution. Let your child apply for a student card only when you’re sure that your child is showing signs of financial responsibility and maturity.
You can help your son or daughter shop around before letting them choose a card. Use comparison sites like BankBazaar to find out the most suitable card for your child and then help him/her complete the application formalities.
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