If you are a full-time college student, seeing the lucrative credit card offers on online shopping portals, the thought of applying for a credit card must have crossed your mind. You might have also checked out a few credit cards on some of the popular card issuers’ websites, but only to find out that credit cards come with income-based eligibility criteria, and as a full-time student you do not have any source of regular income. This begs the question, can a student with no source of a regular income not get a credit card? In this article, we are going to address exactly this question of yours.
How Do Credit Cards Work?
In order to understand why credit cards have income-based eligibility criteria, it is important to know how credit cards actually work. So before we address the question of credit cards for students, it is a good idea to briefly discuss the working of a credit card first.
Credit cards are issued against a line of credit– a special type of loan of a flexible amount granted every month by the card issuer equivalent to the amount spent through the card in the month. Every time you swipe your credit card at a retail store or use your card for making online transactions, a certain amount is paid by your card issuer to the merchant on your behalf. This amount is to be repaid by you to the card issuer after the end of the month (until the payment due date) as the credit card bill.
Line of credit is called a flexible loan as the amount that you spend in a month is not fixed. In most cases, the line of credit is an unsecured loan, i.e. there is no collateral through which the card issuer (which is usually a bank) can recover the loan amount in the event of non-repayment of the loan. Therefore credit cards are issued only on a trust basis.
But how can a card issuer trust the cardholder that they will repay the loan amount on time? For this, card issuers use a few parameters to evaluate the creditworthiness (or trustworthiness for the repayment of loan) of a credit card applicant before they issue them a credit card. Two of the most important parameters that card issuers use to determine the creditworthiness of an applicant are their credit score and income. Credit score is a three-digit number between 300 and 900 (300 being the worst and 900 being the best) given by Credit bureaus to every individual with a credit history (read more about credit score here). Income is an obvious parameter that determines your creditworthiness as the more is the income, the more is the likelihood that you would be able to repay the loan. This is the reason why card issuers require you to have a certain minimum income before a credit card can be issued to you.
Can a Student With No Income Get a Credit Card?
Now that you have an idea of unsecured loans, lines of credit and how credit cards work, we may now address the question of credit cards for students. So, can a student with no source of regular income get a credit card? Well, the answer is surprisingly yes. There are certain types of credit cards- secured credit cards and add-on credit cards- that do not require you to have a regular inflow of money. Let us discuss each of them one by one.
Secured Credit Cards
As mentioned earlier, credit cards are issued against a line of credit which is an unsecured loan, and therefore, in order to trust you as a borrower, card issuers require you to have a certain minimum income. But, what if a credit card is issued against a secured line of credit? A secured line of credit means that you have been granted the line of credit by the bank against collateral. In this case, the card issuer would not require you to have a regular source of income or, for that matter, even a credit history because, in the event of non-repayment of the loan, the bank can always recover the loan amount from the collateral.
Credit Cards issued against a secured line of credit are known as secured credit cards. Some of the popular card issuers including SBI Card, Axis Bank and ICICI Bank issue secured credit cards against a Fixed Deposit which is considered as the collateral. The bank can confiscate your Fixed Deposit in case you regularly default on your credit card bill payments. Some of the secured credit cards issued by the card issuers in India are ICICI Bank Instant Platinum Credit Card, ICICI Bank Coral Credit Card against Fixed Deposit, ICICI Bank Rubyx Credit Card against Fixed Deposit, Axis Bank My Zone Credit Card, and SBI Unnati Credit Card.
Features of Secured Credit Cards
Some of the features of secured credit cards are-
- Issued Against FD: Secured credit cards are issued against a Fixed Deposit which is held with the card issuer as collateral. The card issuer has the right to recover the due balance on your secured credit card in case you are unable to pay your credit card bills on time.
- Minimum FD Amount: Usually there is a minimum amount that you must deposit with the bank as a fixed deposit in order to get a secured credit card. This amount can be anywhere between Rs. 10,000 and Rs. 25,000 for different secured credit cards from different banks. For example, ICICI Bank requires a fixed deposit of a minimum amount of Rs. 10,000 for its Instant Platinum Credit Card, while the minimum fixed deposit amount required for the more premium Rubyx Credit Card against Fixed Deposit is Rs. 75,000. Axis Bank requires a fixed deposit of a minimum of Rs. 20,000 to issue its My Zone Credit Card, while the minimum Fixed Deposit amount required for SBI Unnati Credit Card is Rs. 25,000.
- Credit Limit: The credit limit of a secured credit card is usually between 75% to 90% of the Fixed Deposit amount against which the card is issued.
- Minimum FD Tenure: Card issuers usually issue secured credit cards only against fixed deposits of tenure of a minimum of 6 months.
- Lower Interest Rate: Sometimes, card issuers charge a lower interest rate on secured credit cards. For example, ICICI Bank charges an interest rate of 2.49% per month on its secured credit cards compared with the interest rate of 3.40% per month applicable on most unsecured ICICI Bank Credit Cards.
- Proof of Income: Secured credit cards are issued without submission of any document(s) as proof of income.
- Credit Builder: Secured credit cards are also sometimes referred to as credit builder credit cards as they help the cardholder build a credit history. The cardholder can build a strong credit profile if they pay their bills regularly on time.
Add-on Credit Cards
Another way a student can get a credit card is one of the parents/siblings of the student who already holds a credit card can apply for an add-on /supplementary credit card for them. Add-on credit cards are issued against the same line of credit as the primary credit card and share the credit limit with the primary credit card. The liability of all the spends made with the supplementary credit card lies solely with the primary cardholder, moreover, a single statement is generated by the issuer for the primary and all the add-on credit card(s). You may refer to this post for more details on Add-on credit cards.
Features of Add-on Credit Cards
Here are some of the salient features of add-on/supplementary credit cards-
- Number of Add-on Credit Cards: Most card issuers allow primary cardholders to get one or more add-on credit cards issued for their family members (siblings, parents, children, etc.). Usually, there is a max cap on the number of add-on credit cards that can be issued, or sometimes card issuers issue add-on credit cards free of charge only up to a certain number, post which they charge a small annual fee.
- Annual Fee: Add-on credit cards are usually issued free of charge by the card issuers. However, some card issuers do charge a small fee for issuing add-on credit cards. For example, American Express charges an annual fee of between Rs. 250 and Rs. 1,500 for issuing more than a certain number of supplementary credit cards.
- Credit Liability: The liability of clearing the dues on the add-on credit cards before the payment due date lies solely with the primary cardholder. In the event of non-clearance of the dues on the add-on credit card(s), the credit score of the primary cardholder shall be impacted.
- Billing: Card issuer generates a single consolidated statement listing all the spends on the primary as well as all the add-on credit card(s) in the statement cycle. The primary cardholder can therefore keep tabs on the spends made with the add-on credit card(s).
- Credit Limit: Add-on credit card(s) share the credit limit with the primary credit card. The primary cardholder however can specify a lower limit for a particular add-on credit card so that no more than that fixed amount can be spent by the add-on cardholder in a given statement cycle.
- Spend Milestones: Since all the spends on the primary credit card and all the add-on credit card(s) count towards the same credit card account, add-on credit cards can be really helpful in achieving the spend milestones as applicable on the credit card.
- Reward Points/Cashback: The rate of earning Reward Points/cashback is the same for primary and add-on credit card(s), also, the Reward Points/cashback earned on the primary as well as add-on credit card(s) are posted on the same credit card account. Therefore, the max cap applicable on the number of Reward Points that can be earned on a credit card is applicable on the Reward Points earned on the primary credit card and all add-on credit card(s) combined.
- Additional Benefits: In most cases, additional benefits like complimentary airport/railway lounge access, dining benefits, etc. are not applicable on add-on credit cards. However, in the case of some premium credit cards like HDFC Diners Club Black Credit Card, you get complimentary lounge access at domestic and international airports across the globe on primary as well as all add-on credit card(s).
So, as you can see, even if you are a full-time student with no regular income, you can still get a credit card and avail of all the benefits of credit card discounts on offers by either applying for a secured credit card or by asking a credit cardholder in your family (one of your parents or siblings) to apply for an add-on credit card for you.
For a secured credit card, you must have a certain amount to deposit as Fixed Deposit with the bank. One major advantage of secured credit cards is, secured credit cards help in building a credit history which might help in getting easy approvals for unsecured loans/credit cards in the future, which add-on credit cards don’t.
On the flip-side, add-on credit cards have their own set of advantages, for example, if you have an add-on credit card issued against a premium credit card, you will get the same reward rate on the add-on credit card as applicable on the primary card (if it is a premium credit card, the reward rate would be quite high), plus you will also be able to achieve the spend milestones easily if you have add-on credit cards as spends on primary credit card(s) and add-on credit card account towards the same credit card account.