Risks and Benefits of a Student Credit Card
With the widespread foundation of online shops hither and tither, people are now getting more conscious of the need to have credit cards. Many shops today also offer credit card payments to customers. It is just convenient to use, with less hassles of carrying cash all the time. In this article, we will talk about the risks and benefits of student having a credit card.
Usually, a credit card is only offered and approved only to working professionals or those people who have a steady income. Requirements commonly are proof of income or tax return for at least six months to two years and a valid ID. Students are given credit cards as a supplementary holder of the primary holder like their parent, elder friend or guardian.
Risks of a Student Credit Card
1. Sensibility and Discipline
At a younger age, students might not be sensible enough to opt out of financial debts. If they are earning money only from the allowances or stipend given by their parents, they can always have an excuse not to pay for their other necessities that they cannot afford. What results is that they will ask their parents to pay their credit card bill. Through years of doing so, they will form it into a bad habit that is hard to break. They might purchase things they want without thinking of the credit ranking piled up and the total cost to pay all off. Annual fees would be present, and they can only waive these if they retain a good credit standing in the financial institution. They must always clear up outstanding credit balances to be free of penalties.
2. No Knowledge in Investments
Since students in general do not know much about investments, they tend to get rowdy with their spending routines. Their task is to study and prepare for their future, leaving all other obligations to their guardians. The risk is for them to take this for granted and continue having the same credit card with the credit ranking organization without creating revenue. Hence they will become part of those people who do not realize that building a credit ranking score is dependent on the variety and quantity of their credit ranking transactions. When students typically have a few transactions, credit card companies will only record this small amount of information about them as well. When they grow up and as years pass, credit ranking reporting agencies would not be able to measure this up to a good-sized credit ranking score that will qualify the credit card holder for mortgages and other loans.
3. Lack of Budgeting Skills
Since it is not required for students to immediately cash out for their purchases when they use credit cards, they might only use it without making plans for budget. The tendency is to use up the credits until they reach the limit or the ceiling of the account. It’s okay if they have the ability to pay for the debts, and it’s not if they can’t. This system will not teach them to budget for their finances in the future and they may end up like many adults who are getting hard times to get out of debt.
Benefits of a Student Credit Card
Credit card offers everyone (not just students) the comfort of buying things in the modern internet arena and most shops and restaurants now. With the use of the credit card, people can buy things they cannot afford to pay only in a month. They can chop the amount in a number of months. Some credit card companies offer promotions like zero-interest for credits.
2. Receive Incentives
Students are fond of receiving rewards and incentives they don’t get normally from shops if they pay through cash. Credit card companies encourage people to use credit cards by giving out freebies and discounts upon users transacting a specific amount for payment. Students can get a hold of these rewards from the banks and their favorite shops.
Credit cards can make students and teenagers feel and become more independent. This sounds perfect as young adults can prove to their parents that they are responsible. Since they own up the responsibility for paying for their own purchases, they can grow up without relying on the help of their parents to give them cash. They can apply to part-time jobs like tutoring, cleaning houses, helping in the library and babysitting to shoulder their financial responsibilities. They will understand the cost of their expenditures is equal to the effort they would need to put forth to be able to acquire both their necessities and luxuries in life.
The use of credit cards come with both pros and cons, as illustrated in the points above. The basic concept is that students should be wise enough before they swipe their credit card in the machines. They should have a mentality then to only use the credit card as emergency arises or in normal situation when they know they have the money to pay for the things they buy.
Expenses should not be considered as a child’s play. Once they graduate from school and have a job on their own, they will have the discipline to manage their finances. Having a credit card early can help them already adjust easier and they can already have a good history of credit ranking if they have paid their debts fully on time.
Purchasing through credit cards only takes up less than a minute. However, the consequences of not being able to pay back on time causing delays and financial penaltieswillbe extended foryears. These will result to negative impressions on the card holderand a poor credit score ranking for the student. Students can have credit cards on their own, if only they can manage to be responsible for their spending and not be bent toward the behavior of impulsive buying. In sum, students have to keep their card secure, never go beyond the credit limit and make timely payments.
Kristen Francis Willis is a Financial Consultant by Profession. From time to time, she does some side business with her photography skills. She loves taking pictures, capturing every moment means a lot to her. She’s currently building her reputation as an online writer with the help of PFMP.