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Original poster

Someone please explain credit to me

34 replies

probablynapping · 13/03/2018 19:02

Ok so I'm a student and not great with money (although not terrible). Ive run out of money for this term and need something to tide me over (living costs) until the next lot of student finance (under 1 month).
I've applied for, and been approved for a student credit card. Just waiting for the terms and conditions to come through but I have a few questions on how it works so if someone clever doesn't mind helping me out I'd really appreciate it!
Will I be able to transfer funds to my current account from my credit card? Or another account?
Will I be able to use it like a normal debit card?
Are there some shops which don't accept credit?
Does all of this depend on the specific credit card terms and conditions?

I'm a bit scared of credit to be honest so I'm only going to use it when I really need to and ignore it the rest of the time. I know I'll be able to pay back the credit within the interest free period so not too worried about that. I'm most concerned about trying to use it and being declined! TIA

OP posts:
Sophiesdog11 · 13/03/2018 19:39

Will I be able to transfer funds to my current account from my credit card?

This isn't how a credit card works, there are no funds on it. Each time you use it in a shop or such, the debt gets added onto the card, and you have to then pay it off.

There may be a facility for withdrawing cash from it, but this isn't advisable, as the interest rate for cash withdrawals on a CC are sky high and will be payable from the minute you withdraw cash (even one with an interest free period).

Very few shops dont accept credit cards.

I'm most concerned about trying to use it and being declined!
The CC will have a limit on it (quite low I would expect as you have no income...think my student DS has £200) - the card should only be declined if the amount of debt on the card has reached the credit limit.

I know I'll be able to pay back the credit within the interest free period so not too worried about that.
What concerns me is that as you have completely run out of student loan, before the end of term, how are you going to be able to pay back the debt? Unless you have a summer job lined up?

You will need your next loan to pay for the summer term presumably, so if you use it to pay off the CC debt, will the same happen again, ie you run out of money before the end of the summer term? What happens then, use the CC again and pay it off with next loan instalment, and so it continues.

Whilst a CC is a short term solution, it has to be cleared, and ultimately you could get in a lot of mess if you use money for next term to pay off the CC. Maybe try and get some budget advise on here too?

Original poster
probablynapping · 13/03/2018 19:50

sophiesdog11

Thanks for the help.

I understand the basic concept of a CC - I was just wondering if the borrowing would extend to transferring money. Maybe I phrased the question badly.

The limit is £500 and I won't need anywhere near this much - maybe £150

As for next term - my exams are very early so next term is 6 weeks long, whereas the current term is 12 weeks. I get the same amount of student finance/financial aid regardless so I know I have a big of wiggle room with next term's money. In terms of summer, I have four jobs in the holidays and work my absolute arse off seven days a week to pay my rent and have managed with very little help so far (I'm in my third year).

I just wanted an alternative to asking my parents for money, because they are always so wonderful and desperate to help but have very little lending capacity themselves.

So I would only be able to use it in shops/online, no cash withdrawals?

OP posts:
IndominousRex · 13/03/2018 19:56

Cash withdrawals will attract a charge and interest from the day of withdrawal. If you have an interest free offer then that will only be for purchases or balance transfers (I think you want it on purchases so do make sure this is the case)

IndominousRex · 13/03/2018 19:56

If you tell us which card it is perhaps we could be more specific if that would be helpful? Which bank/offer etc.

Original poster
probablynapping · 13/03/2018 20:11

Indominousrex

Thank you, I really appreciate your help!

It's an HSBC student credit card - I actually can't find much info about it. Presumably that's what they're going to send me, but I doubt they'll spell it all out in plain English.

Normally I'd ask my dad (who knows literally everything) but he's out of work at the moment and I know he'd want to help me out, so I don't want him spending what little money he has on me!

OP posts:
JoJoSM2 · 13/03/2018 20:23

It will be spelled out in plain English. And it's likely to be over 20% interest on cash withdrawals (or transfers to your current account etc) but the paperwork will tell you when it arrives.

If you just use the card to pay in shops, you'll not incur any interest or fees if you stick to the conditions (pay off during the interest free period and make the monthly repayments as required).

Brokenbiscuit · 13/03/2018 20:26

Does your university offer any kind of emergency hardship loan/payment? Might be worth talking to a money adviser at the students' union or similar.

SammyWhammy85 · 13/03/2018 20:27

Have you got a current account? Have you looked into having an overdraft on that? That might be better suited to your needs

Emma198 · 13/03/2018 20:31

Some credit cards allow a cash transfer - mine really said I could transfer up to 95% of my balance for a 2.9% fee, interest free for a year. Totally depends on your card.

Emma198 · 13/03/2018 20:31

*recently

8FencingWire · 13/03/2018 21:01

Right, I looked up your interest rates

Have a look and I’m happy to try and explain to you what you’re unsure about

The idea is that unless you pay in full whatever you’ve spent, the interest rates are eye watering and will bury you deep into a debt hole.
But if you need to withdraw the £500 in cash, you’ll pay 2.99% interest, so nearly £15.

HTH

IndominousRex · 13/03/2018 21:15

So, it doesn’t look like that card has an interest free offer on purchases. Most credit cards offer up to 56 days interest free - what this means is that if you pay off your statement in full by the date it is due then you won’t pay any interest. The 56 day period is stated because your statement is usually generated every 30-ish days and you will then have 26-ish days to pay it back. It is ‘up to’ 56 days interest free because that is the case if you buy something on the first day of your statement month, but if you buy something on the last day of your statement month (i.e. the date before your statement is generated) then you will only have the 26 days interest free before it needs to be paid.

Some cards have offers where your interest rate is 0% for 12/18/24 etc months. With those cards as long as you pay the minimum payment each month then you won’t pay any interest until your offer ends. Your card does not appear to be like this.

You mentioned paying it off in the interest free period, I’m not sure what you meant by that.

Original poster
probablynapping · 13/03/2018 21:19

8FencingWire

Thank you SO much that's really useful

So the cash interest is monthly? I.e. if I took out £100 and paid it back within a month it would be £103?

Also balance transfers - could I use credit to transfer to my current account (for example, to stop a direct debit bouncing)? Is that what a balance transfer is?

So sorry I must come across as really useless - I'm usually quite savvy but I'm quite new to the world of borrowing (outside of student finance England)

OP posts:
Original poster
probablynapping · 13/03/2018 21:24

ImdominousRex

I thought that if I made purchases and then paid them off within 56 days I wouldn't have to pay interest? I'm not sure what I meant either really, I'm a bit lost

Essentially, I'm skint, but only for a short period. On April 9th, a big lump of money will drop into my account and I'll be able to pay back whatever I spend in the next week and a half of this term (after that I'll be back at home with my parents). Will the credit card allow me to do this without being shafted financially?

OP posts:
SammyWhammy85 · 13/03/2018 21:35

I thought that if I made purchases and then paid them off within 56 days I wouldn't have to pay interest?
Depends on the individual card's Terms and Conditions, but that us generally the case - for purchases. For cash withdrawals (or money transferred to a current account), you pay interest from the day you make the withdrawal, and it is usually at a higher rate than for purchases.

SammyWhammy85 · 13/03/2018 21:37

And it might be worth noting that using a credit card to make cash withdrawals can leave a black mark on your credit report

Original poster
probablynapping · 13/03/2018 21:42

SammyWhammy85

I need to transfer £30 into my current account and the rest will be used for purchases only - and repaid on April 9th. My credit score is good at the moment - I have a credit agreement for my car and I've never missed a payment so that has boosted me massively. Do you think I'll be able to claw my score back if this one-off use has a negative effect on it?

OP posts:
Original poster
probablynapping · 13/03/2018 21:46

Is the interest rate the percentage that will be added on per month?
Sounds stupid I know - but take the example of 2.99%. If I withdrew £100, paid it back in full three weeks later - would it be £103? Or does the interest accumulate differently?

OP posts:
IndominousRex · 13/03/2018 22:14

The interest rate is annual. Divide it by 12 to work out how much is added on each month. I doubt that one cash withdrawal will impact on your credit history too much. If the card is brand new then paying it off with you money from April 9th should mean you don’t pay any interest on purchases.

Original poster
probablynapping · 13/03/2018 22:18

IndominousRex

Thank you for the help! It will be a brand new card, and I will hardly need to use it at all. I don't mind paying a bit of interest over the month but I wanted to make sure I fully understand things before I make any silly financial decisions!

OP posts:
Original poster
probablynapping · 13/03/2018 22:19

Just a side note, I don't think this is the beginning of a slippery slope.

I'm (hopefully) not a long term borrower (apart from my massive student debt lol). I'll be a doctor in just over two years so earning potential is decent - hopefully my credit score will survive the next two years!

OP posts:
JoJoSM2 · 13/03/2018 22:26

Have a look at the link Fencing posted. All spelled out in black and white. 2.99% fee + interest rate of 23.6% per annum...

JoJoSM2 · 13/03/2018 22:27

And no interest on purchases if you pay every statement in full on time.

EllenJanethickerknickers · 13/03/2018 22:27

Don't transfer cash to your current account. Most student accounts have a reasonably large free overdraft facility. Check that out. That means you can go overdrawn (negative balance, effectively borrowing from your bank temporarily) for a set amount without being charged fees and maybe interest free.

MessySurfaces · 13/03/2018 22:29

If you want to avoid the balance transfer fee, can you pay for a mate's shopping and get them to give you the cash immediately? Then you can put it straight into your account and cover the direct debit?
Or ring whoever the DD is to and ask if it's too late to pay by CC this month instead?

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