How to build your credit score with a student credit card

Your time as a student gives you a unique opportunity to get started building credit. Establishing a healthy credit score in university may help you access better credit products after graduation, including loans, credit cards with favourable interest rates, and more.

Here, we’ll explore how you can build your credit score with student credit cards. Plus, we’ll share tips for protecting your credit score while using your new card.

Key takeaways:

• Student credit cards have high interest rates
• Shop around to get the best interest rate and terms
• Pay your balance on time and in full to boost your credit score
• Use no more than 25% of your credit limit

What are the risks and benefits of student credit cards?

Student credit cards offer many benefits and can help you achieve many different financial goals. But, as with any credit product, there’s an element of risk involved. While savvy use can boost your credit score, it’s important to be aware of the risks of student credit cards.

What are the risks of student credit cards?

1. Student credit cards have high interest rates: Interest rates are high on all types of credit cards, but student credit cards are in a league of their own. While the average interest rate for consumer credit cards sits around 23%, interest rates on student credit cards are commonly between 35-40%. If you don’t pay your full balance on time, it could grow at an astonishing rate.
2. Low credit limits: A credit limit is the amount you can spend in a given billing cycle. Student credit cards have low credit limits, often sitting around £1,000. That may seem like a lot, but what actually limits your spending is your credit utilisation ratio, or how much of your available credit you’re using. Using more than 25% of your credit limit before making a payment can damage your credit score, so keep a careful watch over your credit score use.
3. Late payments: The single-most important contributing factor for building your credit score is your payment history. A single late payment will damage your score and can be visible on your credit report for as long as six years. If you get a student credit card, it’s vital that you make timely payments. 

What are the benefits of student credit cards?

1. Build your credit history: The length of your credit history significantly impacts your credit score. Getting a student credit card whilst in university can help you start building this vital factor. Having an established credit history can give you an advantage when applying for traditional credit cards.
2. Access money in a pinch: While you should always keep a realistic budget, things don’t always go to plan. A student credit card can help you pay for unexpected expenses or emergencies where you don’t have cash on hand.
3. Protect your purchases: A less-known fact about credit cards is that your purchases of £100 or more are protected by Section 75 of the CCA. So, if you purchase something online and it doesn’t arrive, you can claim that money from your credit card provider. This gives you an added level of security when you purchase items with your credit card.

How to use your student credit card like a financial guru

Now you understand the risks and benefits of student credit cards. Naturally, you’ll want to know what you can do to maximise your benefits while avoiding the risks. With a bit of planning and diligence, you’ll be able to do just that. Start by building these key habits:

1. Make multiple payments each month

When you get a student credit card, the terms will specify what your billing cycle is and when your payment is due. During that cycle, you’ll want to use less than 25% of your credit limit. But what you might not know is that each time you make a payment, it will decrease your credit utilisation ratio.

For example, let’s say that you have a £1,000 credit limit. If you spend 25% or less to maintain a healthy credit utilisation ratio, that limits you to £250 a month. However, you can pay your balance early. So, if you’ve spent £100, your utilisation ratio would be at 10%, but if you pay that off, your utilisation ratio goes back down to 0%. This enables you to spend more than your credit limit in a month without using too much at a time.

But why bother with the trouble of making multiple payments? Because using too much of your available credit signals that you rely on credit. It might not impact you immediately, but lenders might be hesitant to give you new cards or credit products in the future if they see that in your credit report.

2. Always pay your balance on time and in full

We briefly touched on the risks of late payments earlier, but it’s worth giving more attention to the second part of this equation. Why should you pay your credit card’s balance in full?

As any student can tell you, the temptation to save money is a strong one. Making the minimum payment on your credit card balance may seem like it’s saving you money, but trust us when we say this is an illusion.

Because of the high interest rates on student credit cards, the minimum payment will cost you in the long run. As interest builds on your unpaid balance, you could be under a mountain of debt from just a few small purchases.

Yes, paying on time is the most important thing you can do for your credit score, so prioritise making a timely payment, even if it’s only the minimum. But whenever you can afford to, pay your balance in full.

Related read: This is how credit card minimum payments keep you in debt

3. Treat your student credit card like cash

Just because you can spend more than you have on hand doesn’t mean you should. The best way to keep your credit card use under control is to treat your card like cash or a bank card. This helps you avoid debt and ensures that your monthly payments remain manageable.

FAQs about student credit cards

You’ve got questions about student credit cards, and we’ve got answers. Let’s dive in.

Am I eligible for a student credit card?

Eligibility requirements for a student credit card will vary by the bank and credit card provider. Generally speaking, eligibility for student credit cards requires that you:

• Are a UK resident.
• Are 18 or older.
• Are enrolled in a university course.
• Have income—although this may mean different things to different credit card providers. 

What banks offer the best student credit cards?

You’ll probably have the best luck getting a student credit card from a bank where you have a current account. This is because the bank will have better insight into how you’ve managed your money in the past.

That said, it’s good to get into the habit of shopping around for the best deal. While it might be easier to get a student credit card from your bank, another bank may offer better terms or interest rates.

Some common banks that are known for offering good student credit cards are HSBC, Barclays, TSB, and NatWest. When you’re looking for a student credit card, don’t forget to account for factors that will make using the card easier. Look for banks and credit card companies that offer useful mobile apps and that have positive user reviews.

What’s the best alternative to a student credit card?

It’s OK if a student credit card isn’t the right fit for you. It’s important to make financial decisions based on what’s best for your circumstances and what you can afford rather than what seems the most popular or easiest.

Fortunately, you have options other than student credit cards. Some of the best include:

Student overdraft accounts

Student overdraft accounts allow you to access funds similarly to a credit card. Some benefits of student overdraft accounts include:

• Overdraft limits that increase as you progress through university
• Low or 0% interest on overdrafts
• The flexibility of credit cards

Keep in mind that you should use your student overdraft account the same way as a student credit card. This means paying it off on time and in full, using it carefully, and keeping your usage at any given time low. When used wisely, a student overdraft account can build your credit score too.

To learn more, check out our guide to the best student overdraft accounts.

Credit builder loans

If you want to build credit and save money, a credit builder loan might help you. With a credit builder loan, a bank puts the loan amount into a secured account. Then, you make monthly payments on the loan until it’s paid in full. After your last payment, the loan is released to you.

It’s like saving, but your deposits are reported to credit reference agencies as payments. This builds your credit score. However, keep in mind you still need to make timely payments. Otherwise you could end up hurting your credit score.

Build your credit with Pave

Building your credit as a student can be hard. It doesn’t help that the conventional methods of building credit force you to take on debt. That’s why we made the Pave app.

Pave is different because we don’t try to sell you debt or credit cards, and we don’t charge interest. The Pave app helps you keep track of your upcoming payments to protect your payment history, and we report your timely payments to build your credit history. Add personalised credit fixes and support seven days a week, and it’s easy to see why hundreds of thousands of Brits have already downloaded Pave.

To get started building your credit, download Pave today.