Managing Credit Cards at University
Managing Credit Cards at University
University life is often a time of significant personal growth and exploration, but for many students, it’s also a time of financial strain.
Nearly half (48%) of university students have faced difficulties in repaying their credit card balances in full within three months, highlighting a financial challenge for many young people in higher education. While credit cards can offer valuable financial flexibility, they can also become a source of stress for young people just beginning to manage their own finances.
What are the main reasons students may struggle to pay off their credit cards?
The increased cost of everyday expenses is the main reason students struggle to repay their credit card balances, with 33% stating this.
The increasing cost of university (31%) is also a factor, with tuition fees and maintenance loans announced to rise by 3.1% next year. Whether it's higher tuition fees or increased textbook prices, students are faced with financial pressures that can quickly add up.
The necessity to prioritise other household bills, such as rent and energy bills, also plays a role. With rent prices rising, particularly in major university towns, students may find themselves using more of their funds to cover housing costs, leaving little room for credit card repayments. Around 23% of students reported that they are forced to prioritise these essential bills over paying off their credit card balances.
| Top reasons students have struggled to repay their credit card bills | % |
|---|---|
| Rising cost of everyday expenditure, such as food shop and fuel | 33% |
| The increasing cost of university | 31% |
| I have to prioritise paying other household bills (e.g. energy or rent) | 23% |
| I didn't budget my spending effectively | 22% |
| I borrowed more than I can afford to pay off | 21% |
| The interest rate on my card has increased | 16% |
| I lost my part-time job | 15% |
| The interest-free period on my credit card has ended | 13% |
| Unsure | 1% |
The role of credit cards in students' finances
Credit cards have become an essential financial tool for many university students, with 86% of students having taken out or are considering taking out their first credit card while attending university. While credit cards can represent gaining financial independence, they also come with risks.
Despite their popularity, not all students are fully aware of the potential consequences, as 23% of students admitted they are unaware of how credit card spending can negatively impact their credit score.
Students often turn to credit cards for a variety of reasons. The desire to build a credit score is the most common, with nearly half (49%) of students citing this as their primary motivation for applying for a credit card. Over a third (38%) seek to manage their monthly spending, while 32% are attracted to the potential benefits of rewards, such as air miles or cashback. Over a quarter (27%) want to spread the cost of larger purchases, and 22% are drawn to the appeal of 0% interest rate introductory offers. Though these can offer short-term relief, they often come with conditions that students may not be aware of.
| Top reasons students have/ will take out a credit card | % |
|---|---|
| Building my credit score | 49% |
| Managing monthly spend | 38% |
| Benefits/rewards from credit cards (air miles, cashback etc.) | 32% |
| Spreading the cost of larger purchases | 27% |
| Appealing 0% interest rate introductory offer | 22% |
| Fraud/purchase protection | 14% |
| I don't really know | 4% |
The financial decisions students make using their credit cards often reflect their unique spending needs. For example, the average student credit card user spends approximately £96 per month on rent-related expenses, £81 on clothing and shopping, and £71 on extra accommodation costs, such as furnishings. While these expenses are common among students, they can quickly add up, especially when combined with other financial responsibilities. Many students use their credit cards as a tool for managing these costs, but it is essential that they exercise caution to avoid falling into debt.
Understanding credit scores and financial literacy
One of the most important aspects of credit card usage is understanding the concept of a credit score. A credit score impacts the ability to secure loans, obtain better interest rates, and even rent a home. Despite its importance, a proportion of students are not fully aware of how credit card usage affects their credit scores.
The survey revealed that while 83% of students understand the positive impact that using a credit card can have on their credit score, only 77% are aware of the negative impacts. A lack of awareness about the consequences of missed payments or high credit utilisation can lead to long-term financial difficulties. Plus, 30% of students do not know their credit score, and 6% say they have a poor credit rating, which could impact their ability to access credit in the future.
Despite these financial challenges, many students are confident about their ability to secure future credit card approvals. According to the survey, 72% of respondents feel assured they will be accepted for future credit card applications. However, confidence varies by age group, with younger students (17–24 years old) feeling more optimistic (71%) than older students (45–54 years old), where confidence drops to 59%.
The majority (83%) of students currently either have a credit card or are planning to get one. It’s particularly encouraging to see, that before making a decision, a significant 82% report that they compared credit card providers online. This is a great way to explore different deals and can help people make informed financial decisions. Many students also rely on advice from family members (47%) or seek guidance from online resources such as blogs, websites, and advertisements (39%).
Additionally, social media influencers and banks also play a role in educating students about credit card options, with 21% of students learning from influencers and 26% following their bank’s recommendations.
The pros and cons of using credit cards as a student
Guy Anker, Money Expert at Compare the Market, emphasises the importance of understanding both the advantages and potential pitfalls of credit card usage.
“Taking out your first credit card can be an important financial step towards gaining financial independence, and it’s encouraging to see that many students are proactively comparing providers online before choosing their card.”
“If you’re a student and considering a credit card, it’s important to be aware of both the advantages and potential pitfalls, so you choose the right card for you. Student credit cards typically have no annual fee and a low credit limit, so you won’t be able to continue spending indefinitely. They could help you spread the cost of purchases, build your credit score and learn personal finance skills. However, make sure to never borrow more on a credit card than you can afford to pay back, as you could risk getting into debt. It’s also important to pay off the balance of your credit card in full each month, otherwise, you will likely need to pay higher interest rates.”
Methodology
A survey of 2,000 UK University Students (aged 17+) was conducted in September 2024.
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The Editorial Team - Compare the Market
Experts in personal finance, insurance and utilities
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.