Video Transcript – Credit Cards

Credit cards are marketed aggressively by banks as a great way to build your credit score as a young person. A good credit score can help you borrow cheaply in the future. Effectively, if you repay your credit card balance fully each month for a number of years your credit score improves. But otherwise, if for instance you incur high credit card debt this will make your credit score reduce.

So, a credit card can be a good idea for a student if you do not really use it as a credit card. If you repay the balance fully each month (you can set up a direct debit from your current account, so that you do not need to actually do anything) you do not have to pay any interest at all, you get to improve your credit score and you might get some bonus points or other benefits in case a product you buy is faulty.

But the bank’s bet is you will not use it like that but spend more than you can repay each month and incur an expensive interest rate. They make a profit from those who use the credit card to borrow and cross-subsidise the cost of the service for those who do not use it to borrow. So, a credit card can be a good idea if you are disciplined enough only to spend what you can repay each month without incurring any interest charges. If not, better avoid it.