While you are a student you may be offered a credit card. Credit cards can be an expensive way to borrow money and you should think very carefully before applying for one.
Before using a credit card it’s important to know exactly how much you are going to end up paying. Most credit cards will charge you interest.
For more detailed information see Which? Money Compare: credit cards.
Applying for a credit card
You can apply in a bank branch, by telephone, online or by post. When applying you will be asked to provide information about where you live, how much you earn and whether you have any other cards or credit. The finance company will then do a credit check and if your application is successful they will decide on your credit limit.
The amount you can borrow will depend on your circumstances.
To entice new customers, credit card companies sometimes provide incentives. You may be offered a 0% interest rate on balance transfers or new purchases for a limited period, free airmiles or gift vouchers. A lack of interest can be tempting, but it is important to know what the interest rate will be when the introductory period ends.
The card provider will typically put a limit on your spending and also set a minimum monthly repayment on your borrowing. Try to avoid only paying back the minimum amount as you will be charged interest on the balance and your debt can quickly grow.
Fees for transferring a balance are generally around 2.5% of the total debt being transferred, capped at around £50, but card providers sometimes offer interest-free periods on balance transfers.
If you have quite a large balance, transferring it to a 0% card could give you a chance to clear the debt without accruing more interest.
This should not be considered a long-term strategy for managing your debts.
Interest rates vary from card to card and according to how you use your credit - for example, the card provider may charge different interest rates for cash withdrawals, purchases and balance transfers.
Withdrawing cash from a cash machine or using a credit card cheque are usually the most expensive ways of borrowing. As well as being charged a higher interest rate there will often be a fee of at least 1.5%. Most providers also charge this kind of transaction fee if you use your credit card overseas.
The APR tells you how much your borrowing will cost over the course of a year, as a proportion of the amount you have borrowed. It includes any upfront fees charged by the lender, spread over the period for which you are borrowing the money. So if you are borrowing £100 at an APR of 9% you will pay £9 in interest over the first year.
As well as transaction fees and interest, you may end up paying a fee if you miss a monthly repayment. Most banks charge around £12. If you go over your agreed credit limit, or the additional charges push you over your agreed limit, you may be charged an additional £12.
Banks tend to insist on cardholders making monthly repayments by direct debit, which greatly reduces the chances of a payment being missed.