As a student, your credit history is pretty much blank. Since you have never taken out a loan or paid any bills credited to your name, you don’t exist in the financial books of credit rating agencies such as Experian and Equifax. Building up a credit rating is essential for getting access to easy credit in later life. A student credit card is a great way to build up a credit history and get access to easy cash at the same time.
What is Credit Rating and Why Does it Matter?
Credit rating can be described as your ‘credit-worthiness’. Essentially, it is an estimate of your ability to pay off debts and bills in time. Your credit rating is an amalgamated record of all your previous financial dealings. This includes credit card debt, car and personal loans, mortgages, and even electricity bills. Experian and Equifax are the two credit reference agencies in UK which collect all relevant financial data and give you a credit rating.
Any time you need to borrow money, either in the form of a loan or a credit card, the lending institution checks your credit rating to determine whether you will be able to pay off the debt. The higher the credit rating, the easier it is for you to borrow money. A higher credit rating can translate into lower interest rates and more lenient payment terms. For obvious reasons, having a strong credit rating is important for a successful financial life.
How to Build Credit Rating?
As a student, you start your financial history with a clean slate. This means you have no negative marks in your financial records. At the same time, a lack of financial history can make lending institutions wary of lending you money. After all, what is the guarantee that you will pay off the debt?
The first step, therefore, is to start building your credit history. The easiest way to do so is to get a student credit card such as aquacard. A student credit card works like any normal credit card – you can use it to pay for goods in-store and make online purchases. The only difference is that the barriers for entry are low, given the lack of credit history of the target demographic. As long as you keep paying off all debt at the end of each month, you will leave a positive impact on your credit rating.
What to Look for in a Student Credit Card?
There are three important things you must consider before applying for a student credit card:
1. Annual Fees: Some credit card companies charge an annual fee to the credit card holder. This can range from a few pounds to upwards of a hundred pounds. Getting a credit card without any annual fees is highly recommended.
2. APR: APR, or ‘Annual Percentage Rate’ refers to the typical interest rate charged by the lending institution on any outstanding debt. For obvious reasons, low APR is highly desirable in any credit card. Some student credit cards such as aquacard offer APRs as low as 34 per cent.
3. Ease of Approval: The application process for a student credit card must be designed to accommodate a student’s lack of financial history. Most student credit card companies ask for little in terms of documentation and have a streamlined process to approve new applications.
A high credit rating equals easier access to cash in the future. Getting a student credit card is a great way for students to build their credit rating for future borrowing.