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The banks are gearing up for their annual marketing blitz aimed at students. The charm offensive typically involves freebies or cash bonuses if you sign up for a student credit card or student line of credit.

It’s easy to see what’s in it for the banks: newbie customers with whom to build an (ideally) lifelong relationship.

But for students?

Don’t get me wrong, both credit cards and lines of credit can come in handy when you’re a student. For one, building a credit history early on is more important than ever in today’s hyper competitive rental market. Landlords in Toronto, for example, are routinely asking to see prospective tenants’ credit scores. Not having a credit history can make the house-hunt even harder.

That said, students should tread carefully. Here are three tips to help you choose whether and what to sign up for:

Forget the rewards. If you’re on a shoestring budget, you probably won’t spend enough to make the points program worthwhile. At this stage, simply focus on developing the habit of paying off your balance in full and on time every month.

Choose no fees and lower interest rates. Rather than chasing points, choose a card with no annual fees and a lower interest rate. Ideally, you’d never have to worry about paying interest because your payments are always on time but … life happens.

Know your debt. If you’re choosing between a student line of credit and government student loans, do a full comparison. Lines of credit often have a lower interest rate, but there are more pros and cons to consider.

Lines of credit are flexible: As with a credit card, you only borrow what you need and as you pay it back, you free up more room to borrow. However, you typically have to pay at least the interest on what you’re borrowing while you’re in school (you can often continue to make interest-only payments even six to 12 months after graduation).

In contrast, with government student loans you don’t have to worry about payments while you have your nose in the books. And after you graduate, you also get a six-month payments-free grace period – although sometimes interest accrues during that period.

Also, if your income is low enough, you’ll be eligible for repayment assistance, an option that isn’t available with a line of credit. Finally, you receive a tax credit on the interest you pay on your government student loans. With a line of credit, you forgo that tax perk.


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