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Here's a situation of high financial risk that many of us have probably placed ourselves under without realizing and given the current economic uncertainty it's one that we should pay more attention to. Fortunately the unsuspecting credit card is a means to avoid the risk in most cases and set our minds at ease.
A friend of mine was recently refitting his property and was making some sizable purchases such as furniture and kitchen appliances, some of which would cost several thousand pounds. Having searched for exact the items he wanted and found a supplier who looked trustworthy and could provided them at a fair price, he set about making his purchases. His typical means of payment would normally be by credit card, not just because it delayed slightly the transfer of cash but largely due to the convenience and control it offered. He fully intended to pay off his credit card balance when due, so the borrowing facility offered by the card was not important. He would not pay any interest on his card balance so that was also unimportant. When it came to paying for his items he discovered that some suppliers would add an additional charge for any purchases made by credit card. Although these additional charges were only a small percentage of the purchase price, for the larger, more expensive items, it amounted to a significant sum. The alternative was to pay by cheque, cash or debit card and avoid the extra charge. Wanting to make his finances stretch as far as possible my friend opted against the credit card payment method.
So the items were ordered and payment was made. All that remained was to wait for his purchases to be delivered, a wait that was going to involve several weeks in some cases. It was now that my friend realized that he had just placed himself into a high risk situation. Where would he stand if the firm supplying his goods went out of business? Although he had no reason to suspect they would, it was not an impossibility in the current business climate and he suddenly felt very vulnerable and a little stupid. That seemingly innocuous decision not to pay by credit card and save a few pounds had placed a very different slant on his position. The reason being section 75 of the Consumer Credit Act 1974.
That clause imposes a law on credit card companies to make them equally liable for the non-supply or faulty supply of any goods or services that have been paid for by a credit card. Effectively he had waived a valuable form of insurance in return for some small savings. The cover provided by Section 75 is applicable to items costing more than 100 pounds and up to 30,000 pounds. So quite a wide spread meaning that all of my friend's purchases would have benefit from this cover had he paid by credit card. If any of the suppliers concerned had ceased trading or had failed to deliver the goods he had ordered, he could have claim against his credit card company for the full amount he had already paid. The supplier and card company are held equally liable under the act so he would not need to approach the supplier – a difficult matter if they no longer existed and had disappeared with his cash. The cover now also extends to purchases main in mainland Europe for anyone purchasing from the UK.
In fact some cards are even extending the cover they offer, beyond the boundaries of the Section 75 rules. Some now offer purchase protection insurance which additionally covers the purchaser against theft, loss or accidental damage of purchases. If you intend to take advantage of a card offering extra purchase protection you should read carefully the terms applied by your credit card provider as this additional cover often includes limits to the level of cover provided and exclusions of certain types of products.
According to studies, many students are left with unresolved dues after completing their graduation. This is probably due to credit card overuse, which attracts debt to their account.
What Industry Experts Say?
According to financial experts, credit card issuers look upon students as potential market, even though they know students are unemployed individuals. As a student, you spend much not only on fulfilling your academic wants, but also on various other things. Credit card issuers know this well. They even know students are not capable of paying off their debts in one go. As such, the issuers levy additional charges such as the penalties against late payments, annual fees, high rate of interest and penalties for crossing the credit limit.
Student credit cards help students to build their own credit history, if used smartly and properly. Hence, you need to know the correct use of such cards. Whichever transaction you do with your student credit card, it will surely reflect on your credit report. It affects the credit score, which is normally denoted by points system. If you are a late payer or miss on the payments or cross the credit limit, it is bound to affect the credit score negatively. A careful credit card user sees to it that all the payments are paid on time to maintain the good credit status.
It is necessary to maintain a positive credit score, so that in future, if you apply for loans with creditors, they get a fair idea of your transactions. They do this by referring to your credit report. After graduating from college, students have to prove their creditworthiness and this is evident through the credit report itself. Before accepting your applications, credit lending companies, landlords, governmental institutions, employers and insurance companies will peep into the credit report you possess.
A nice move
To maintain a good credit score, a nice move is to discharge all the monthly balances on time as they arrive. Avoid spending on unnecessary items. Instead, use student credit cards only on making important purchases such as books and groceries. Keep away from using credit cards, while dining out. Likewise, while making purchases, consider the repayment options first. Even before you purchase, decide over the payment strategy and the source of income for repayment.
If you pay your monthly payments at the right time, you save yourself from paying extra charges such as interest and late fees. Further, your creditworthiness remains unharmed. It is up to the students for how they manage the credit scores on their credit reports.
Overview:
Student credit cards are indeed worth the investment. Through proper education over their use in terms of security, students may derive as many benefits from these cards.