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Credit cards and student bank accounts

Top tips

  • Tread carefully if you are considering using any source of credit
  • Remember that credit is debt and will always have to be paid back
  • Stick to the minimum amount you need to borrow and check that you can afford the re-payments
  • Read the small print before signing anything as all credit agreements are legally binding
  • Keep up your re-payments, as late or missed payments will incur charges and they may affect your credit rating
  • Avoid short-term or "pay-day" loans - the interest rates can be very high
  • Be informed - find out more below.

Credit with very high interest

Beware of companies that will give you a small loan, but then charge you a large amount of interest, such as companies who knock on your door or who advertise on social network sites, sometimes saying they offer "student loans".

These are not official government loans, they tend to be micro-loans which are small amounts borrowed over short periods.

Some of these companies offer to loan you say £100, to be repaid in three weeks at a cost of £9 interest per week.

Example: a loan of £300 over 21 days attracts a charge of £81. Total repayable = £381; that's a charge of 27% for a three-week loan.

Many companies encourage you to borrow more when you have repaid some, or all, of the initial loan. We would advise all students to avoid borrowing in this way wherever possible.

For more in depth information about interest and personal debt please see our Debt and Personal Finance Advice pages.

Understanding the sources of available credit

Student Bank Accounts with an interest-free overdraft

An interest-free overdraft can be a sensible way of borrowing money if used correctly. Make sure that you stay within your limit so that you don’t incur charges and try to pay it off by working part-time or during the holidays. If you think you need to extend your overdraft limit during your course, speak to your bank first as you will incur charges. Or speak to a Money Adviser for advice. Remember, it will need to be paid back after the end of your course and it may then start to incur interest.

Have a look at the Save the Student best student banking guide 2022  or Compare the Market Student Bank Accounts to choose and compare the best account for you. 

Credit cards

Use a credit card for emergencies only and pay your bill in full at the end of each month.

To find out the cost of a typical credit card you can find free credit calculators online, an example of which can be found here. If you’ve already got a credit card, look into transferring your balance to an interest-free card. Shop around for the best deal.

Some credit card companies will charge you a transfer fee, so check this beforehand. It’s usually a percentage of your balance. Also, you need to have a good credit rating to be accepted for the transfer. If you get turned down it may affect your credit score, read more about transfers on the Money Saving Expert website.

Store cards

Store cards are very much like credit cards but the interest rate can be higher. As with credit cards, only use them in emergencies and try to pay the balance in full at the end of each month.

If you are having difficulty keeping up re-payments on credit cards, store cards, or any other source of credit, please contact a Money Adviser for advice.

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