This is going to be a slightly longish post. However, I will put down my experience here of having a credit card as a student in India. (Or anywhere else)
Now, you will hear a lot of cons. These include overshooting budget, hidden fees, credit card fees, and so on, which are meant to deter you from getting a credit card.
I am working for the last four years, and still, my parents don't encourage the use of Credit Card very often.
A lot of it comes from the rooted cultural bias. India is a country of people who save & spend or borrow for essential needs like housing and education (loans). it is time we start breaking these cultural bias and move towards building a stronger financial future.
I will write a bit about my experience on how and when, and why I started using a credit card.
I was in the final year of my MBA, and for the summer, I was supposed to do an internship. What that meant was some extra money flowing in my kitty. Now I wondered, while all of this money is flowing in, what I should be doing.
Of course, these thoughts came after spending it on things I liked, bought some stuff for my parents and splurged it on food.
After the initial excitement settled in - I wanted to understand what I can do with the rest of the money. I started looking up investment options. I signed up for a SIP and invested some amount in equity. But then there was this thought - I have some money in my bank account, and I will mostly end up using it - because I had a debit card at my disposal all the time.
The very next thought was like - how can I cap the spending on my withdrawals. Some 20 hours of online research later, I thought, why not get a credit card instead. Thankfully because I was interning - I showed that amount as an income statement. I got my self a primary HDFC credit card.
That started my journey into the world of credit cards, miles and points. While then, I got a Credit Card without any knowledge -but now that I look back, I think I got lucky & what I am about to tell you will make you get a credit card.
Reason 1: Start making your credit history
You may not realise this as a student - but the minute you get out in the real world, everything works basis your credit history. If you want to be financially independent, this comes in handy. You want to take a personal loan, buy your first car - you will need to prove that you are worth it. Then only banks will lend you money.
For this, they will check your credit history. If your credit score is high - you have made low or no payment defaults and paid everything in the past on time, banks will realise that they can trust you a bit more.
Because of good credit history and high credit score, one can secure a loan at a lower interest rate. However, suppose your credit score is poor. In that case, you may be rejected for a loan immediately or given a very high rate of interest.
Moreover, suppose you want to apply for a premium health policy or insurance plan many times.
In that case, the rate will vary depending upon your credit score, and how much premium you pay is a direct function of your credit history. One of the easiest ways to improve your credit score is paying your credit card bills on time. If you do this automatically, your score will increase.
If you plan to study abroad then you will not be issued a credit card immidiately since there is no credit history in that specific country. But if you have a credit history in India - some banking partners allow you to get a International Credit card basis your current credit score in India and start building your credit score in a different country (Which has a host of benefits again)
TLP Tip: Check your credit scores regularly. I use Cred app to check my Credit Score via Experian or CRIF.
Reason 2: Cashback & Rewards
I use my credit card because I receive a lot more value after using it. This value can be translated into various things like - ease of use, customer service, cashback and rewards. The rewards bit is a big part of the value chunk.
As students, I have always wanted to save more on whatever I do. Look for coupons and deals and minimise spends wherever possible. With the right card in your pocket, you can avail many promotions on various portals to help you save up as a student.
TLP Tip: Analyze where you spend most as a student. Is it home delivery of food, daily commute or any other spend. Get a card which is specifically designed for travel and dining or delivery cashbacks with thier respective partners.
Reason 3: Capped Spends
As a student one needs to manage finances effectively. You can set a limit and lock your credit card to prevent any future purchases. These will not only decrease frauds but also decrease your spending and lead to more effective planning.
If this is a credit card provided by the parent - they can set a lock as well. This whole exercise may be a little difficult to begin with but will eventually ensure that you are not overspending and your credit is limited.
Reason 4: Track Spends
This leads to my last and final point. When your credit card bill is generated at the end of every month, it will give you details of every transaction. At one point in time, I used to print all my credit card statements and highlight all the spending according to categories and colour code. I know that is archaic and not very environmentally friendly. Now there are apps to do that, or you might as well do it digitally.
However, the point being, you will exactly know where your money went, what are the hidden charges or any disputes that you need to pick up. There is a record always, unlike the cash transactions where we tend to forget if the invoices or bills are not maintained.
Again, this may take some time for you to figure out what categories you are spending most on - figure out spend patterns and optimise accordingly.
How to get a Credit Card as a student?
Ask your parents
A lot of students get cash from their parents every month. They can ask their banks to issue a credit card to their children. This is an independent credit card that you will have to manage and pay bills for.
Apply for a student credit card
There are a few student credit cards that I will cover in a separate post, as mentioned below. These cards usually do not need an income statement. This makes it very easy for it to get and process. One card which comes to mind right now is the HDFC Millenia Card.
Get an add on, or supplementary card
Parents can always give a supplementary card to their children. If parents have a high reward rate card - they can continue to make more points by simply giving a supplementary credit card.
Aren't credit cards risky for students?
Everything is risky. If not used correctly or with boundaries or constraints, I believe things can go downhill for anything at all. However, one needs to start taking care of their finances and take ownership of how one spends and assess how to minimise it.
As long as you pay your bills on time and in full - you are good to go. Just follow this golden rule, and you will not have to worry about anything else. Trust me - you need to use your credit card. Don't let your credit card use you.
Another thought you might have is regarding the avenues where you can use a credit card. I am sure you do think cash is more effortless when it comes to multiple things. But take a pause and look around.
Today, you can buy anything online, get food and groceries delivered, pay rent on credit card and even local stores and transportation. For all of the above, you can use a credit card.
However - one needs to pre-plan stuff, so there is never a tricky situation you are left in. Once you practice consciously using your card for a few weeks - the habit settles in pretty fast.
Which credit cards can a student use?
I am thinking this question in itself can be a separate post. But for this, I might need your help. If you are a student and are using a credit card - please let me know in the comments below. I would like to understand all entry-level cards before sharing my thoughts and recommendations.
In a nutshell if you are able to pay your bills in time - a credit card is great to build a good credit score - and will help you the day you get out of college or even before. Do let me know what do you think about this!
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