Student credit cards are quite popular in the western countries but it is a fairly new concept in India. Only a few banks such as SBI and ICICI Bank offer student credit cards on various terms and conditions to students above the age of 18 years. Even the parents in India dread the thought of giving a credit card to their college-going kids as they think it could lead to a financial disaster. It is quite instinctive that they want to protect their kids against the cruel world of debt but the sooner kids learn the ropes of credit, the better it is. Understanding credit at a young age will prepare kids for their financial future.
What is a Student Credit Card?
As mentioned above, there are only a few banks that offer this facility only to the students who meet their eligibility criteria. For example, SBI Student Plus Advantage Credit Card is only offered to those who have availed an education loan with the bank. The student is not required to submit any type of income proof; just the student ID, address proof and a passport size photograph would suffice.
The credit limit on student credit cards is lower to prevent reckless spending by the student. But other benefits of a normal credit card like rewards and cashbacks can be availed on the student card as well. Fuel surcharge waiver is also offered on some cards making it good for students who use a vehicle. Moreover, credit cards give them the ease of use and they would not have to carry cash everywhere. Using credit cards would also teach them to responsibly manage credit and build a positive credit score.
Not a lot of banks offer student credit cards as a separate product, but they do allow students above the age of 18 to use secured credit cards and add-on credit cards as alternatives.
Secured Credit Cards
Secured credit cards can be a good start for students who want to build their credit history. These are offered against fixed deposits. Students who have a fixed deposit in their name can get a credit card that is backed by this deposit. One of the most important criteria to be eligible for this card is the value of fixed deposit.
The minimum amount of deposit required for getting a secured credit card varies from one bank to another. For example, SBI Card Unnati is a secured credit card that can be taken against a fixed deposit of ₹25,000 or more whereas ICICI Coral Credit Card against fixed deposit requires a minimum deposit of ₹20,000. The credit limit on secured credit card would be up to 90% of the total amount in the fixed deposit account. However, this also differs from bank to bank.
Apart from students, secured credit cards can also be a good alternative for those who are new to credit or those who have bad credit score.
Add-on Credit Cards
Another good way to let students use a credit card is by handing them an add-on credit card. A number of credit cards come with the facility of free supplementary or add-on credit card. Parents can avail this facility on their existing credit card to give their children more spending power. Although the overall responsibility of bill payment would be on the primary card holder, for students it can be a good way to understand credit card usage. The primary users can also set a limit on the add-on card so that they can retain control on the total spending.
Parents, who get add-on cards for their college-going children, should encourage them to make bill payment on their own so that they can get a fair idea of how billing cycle and payment affects credit. However, an add-on credit card does not help the secondary cardholder in building a credit history. All financial obligations and credit histories related to the add-on card will be upon the primary card holder.
Why college students should use a credit card?
Financial experts suggest that even if you plan on minimal use of the credit card, you should get one as early as possible. If you are not convinced by this statement, here are the five reasons that prove why it is good for students to get a credit card.
1- Builds Credit Score
There is a whole world of credit out there which you are completely unaware of unless you step into it. Though your elders might say that it is not a good idea, you should understand that time is changing. Credit score and credit history did not have so much importance a few decades back but now it has become an essential part of life, especially if you look forward to buying a home or a car in future. Having a credit card when you are in college establishes an early relationship with your credit profile and also with the bank. A credit history that goes back to your college days would be of big help when you are out there in the market looking for a bigger loan.
2- Helps you Learn Good Credit Habits
A credit card during your college days works as a passport into the adult world. But you also need to remember that it comes with responsibilities. It is not only the phone bill that you need to manage now that you have bigger bills at hand. When you start paying your credit card bills, you will get better at planning and scheduling your expenses. It will help you in thinking ahead and planning for your future expenses so that you would be able to pay at least the minimum amount due every month.
3- Helps you Understand the Consequences of Bad Credit Practices
It is true that credit card acquaints you with good credit practices but at the same time it also gives you an understanding of what happens when you do not make payments on time. If you miss a single payment on your credit card, the next month you have to pay the previous bill along with the new bills of the next statement. Also, credit card charges a high rate of interest, the consequences of which will be visible in your bill in case you miss the payments. You get acquainted with these nuances only when you implement it in real life.
4- Makes Shopping Convenient and Rewarding
Credit card is like carrying plastic money which is definitely better than carrying a wad of cash when you go out shopping. And, why should you use cash when paying with credit cards lets you earn rewards and cashbacks. Student credit cards and secured credit cards also follow the bank’s rewards program. Young adults shop the most so they are also more interested in rewards and cashbacks and what can be a better way to earn rewards than credit cards? Students who like to fly home quite a few times in a year would also enjoy the air mile program on credit cards, if offered by the bank.
5- Credit Cards are good for Emergencies
When you are studying away from home, any sort of emergency may strike- it could be a medical emergency or you may be required to run home urgently. When you have a credit card, it is easier to cover these expenses. It is not only good for the students but it also reassures the parents that their son/daughter has enough means to meet unplanned expenses.
Suggested Read: 5 Amateur Credit Card Moves to Avoid
The Flip Side
Well, we hate to say this but it’s not all roses. While credit cards are great to teach the kids some financial discipline, they can also hurt their credit score if not managed properly. It can also trash the parents’ credit score if the kids have been given a supplementary credit card and can hamper their retirement plan. Financial mistakes made in the late teens can remain on the credit report for quite some time.
So, the parents need to understand whether their child is really prepared to handle credit. Here are a few red flags to giving a credit card to your college-going kids-
- If they regularly miss their phone bill payment or other utility bills.
- If they have never handled any credit whatsoever.
- If they have not been able to save any amount even when you asked them to.
Credit cards are a wonderful way for building your financial profile and stepping into the world of credit. But students need to be diligent when dealing with their debts. Paying bills on time and managing it responsibly can be a great start to your financial future.