Credit cards are useful in that they provide a simple and convenient way for people to buy larger goods, and can offer more protections when buying goods online that debit cards. They are accepted almost universally across the globe, and for the times when you need access to large sums over a few hundred pounds in a single transaction – they can be utilized as an on-demand short-term loan.
But, with all the sources of finance for students around today, do you *need* a credit card?
What’s the difference between a credit card and a debit card?
This is something that a lot of people are confused about, and when both cards are Visa or Mastercard, then it can be even more confusing. The easiest way to remember the difference is that a debit card is essentially a bank card, in that when you spend money with it, that money is taken directly out of your account. You can only spend the money that was already available in your account with your debit card, and you are not charged interest on money spent with your debit card unless you go into your overdraft).
A credit card, by contrast, is essentially an on-demand loan from the bank. By spending money on your credit card you are taking out a loan for that amount and will be charged interest on that money until you pay it back. The interest rates are often around 15-20% APR, and so if you need a longer term loan, then arranging one directly with your bank would offer better rates – but for convenience a credit card is hard to beat. Also, if you pay off the full amount on the card each month, then you are not hit with the interest.
When to use a credit card
You should not be using a credit card for day-to-day purchases, as a debit card would be far more practical and cheaper for you in these cases. If you need to buy a car, or have the money available quickly for a deposit on renting a flat or similar – then a credit card can be very useful, as most people do not have £400+ ready and waiting in their bank accounts. A credit card makes these larger transactions smooth, so that then you are just left paying tha sum back to your credit card company, with which you already have a financial relationship.
As with a credit card you are spending the credit card company’s money, and not that from your own bank account, some credit cards offer better insulation from internet fraud and similar activities – because it is the bank protecting its own money. Fraud protection for debit cards has increased over the past few years, however, with many offering similar protections – but each bank is different, check with your bank and credit card company to find out how you are protected.
Don’t be fooled by the extras
Many credit card companies tempt customers into spending more on their credit cards by offering cashback, Air Miles, Nectar points, or other such schemes. Whilst the APR should be the most important thing when choosing your credit card, these extras can be beneficial. If you always pay back the full amount each month, then these extras may even be more important to you than the APR. However, do not be fooled into spending more than you can pay off on your credit card in order to gain these extras – it will come back and bite you in the long run.
So, do I need a credit card for university?
You probably do not need a credit card, but one could be useful to have for those big item purchases. Shop around for the best deal to suit you, but remember to use it sparingly and pay back the full amount at the end of each month.