Student credit card basics explained: Credit limits, billing cycles, and interest rates

If you are a student and want to build your credit score, you can consider getting a student credit card. It requires no credit score or income proof. You simply need to have an FD account with the bank you are applying to for a credit card. 

The credit card is secured against the deposit value. Amidst all these perks and ease of application, it helps to prepare by understanding the essentials for responsible card usage.

Read on to get a clear picture of how it all works.

What is a credit limit?

A credit limit is the maximum amount you can spend using your credit card. The card issuer decides on this limit based on your financial profile. Typical factors considered include your income and credit history. 

For a student credit card like the FIRST WOW! from IDFC FIRST Bank, the criteria shift is more relaxed. An FD with a minimum deposit of ₹20,000 is enough to apply for this credit card. You can expect 100% of the FD value as the credit limit. Stay within this limit to build a healthy credit score.

How does the credit billing cycle work?

Once you start using your credit card, all your spending is tracked within a fixed window. This is termed as the billing cycle. It typically lasts a month. Understanding this cycle helps you plan your repayments. All credit transactions, including cash withdrawals, are recorded in a billing cycle of 28 to 31 days.

Your credit card statement is generated on the last day of the cycle. The time between the bill generation and the due date is the grace period of 15 to 20 days. This means you enjoy an interest-free period of 45-50 days. You incur zero interest if you clear the credit card bill within this duration.

Application of the credit card interest rate

You are required to pay interest only when you don’t clear the credit card bill in full by the due date. This is one of the most critical aspects to understand before you start credit card apply process as a student. Interest applies to:

• Unpaid balance: The amount remaining after you have cleared the minimum due on your credit card bill.
• Carry over balances: The outstanding balance that spills into the next billing cycle. Also, new purchases attract interest.
• Missed due dates: Failing to pay even the minimum amount also results in interest, along with the late fees.
• Cash advance fee: This is the interest applied to cash withdrawal, applicable from the date of withdrawal, without any interest-free period.

Smart credit card habits for students

Now that you’ve learned about the basic credit card concepts, you can use the student credit card thoughtfully. Here are some practical tips to get it right:

• Track billing dates

You will receive updates on the upcoming credit card bill through SMS alerts and email. It helps to track this due date to clear your dues on time.

• Pay your bill in full

It is always a good practice to clear your credit card dues in full to avoid interest on the outstanding amount.

• Keep usage intentional

Make sure your transactions are within the credit card limit and keep the credit utilisation low to exhibit responsible behaviour.

• Set reminders for autopay

If you have a hard time keeping track of the due dates if you have multiple financial responsibilities to track, set reminders or automate payments. 

• Review the credit card statement

Look into the breakdown of transactions thoroughly once you receive your credit card statement. Make it a practice to understand your spending patterns and spot any unauthorised usage or errors early.

Final words

You can responsibly use a credit card once you understand all the basics. With the right habits in place, managing a credit card is straightforward. Use the credit limit wisely, plan your payments, and clear the credit card payment within the due date. Avoid carrying over balances unnecessarily or missing payments at any cost. This way, you can enjoy the perks without any hefty cost. Focus on financial discipline, and you will be rewarded for your patience with rewards and a healthy credit score in the long run.