With so many different types of credit cards, how do you know which card is right for you? One offers the opportunity to earn thousands of airline miles, while another allows you to transfer funds and pay 0% interest for a while; Yet another country where you can get 15% off purchases from certain retailers, which one do you choose?
Before deciding on a particular card, it is helpful to familiarize yourself with the different types of credit cards available. How do they align with your credit history, needs, and the types of rewards you want to earn? And what are the fees, interest rates, and other charges associated with each card type? This guide to credit card types can help you get started.
The many types of credit cards cater to different consumer needs, and each card has its unique appeal. The right one for you is the one that will help you meet your financial needs responsibly while providing the best possible value. You need to consider your credit score, how you intend to use your card, what rewards (if any) you are likely to earn, and what interest and fees you are willing to pay.
The following explains different types of credit cards – how they work and who they work best for. Have your credit score ready and read on.
Reward Credit Cards
Reward cards give you points, miles, or cash back when you make purchases. If you’re looking for a premium credit card, you’ll find a galaxy of options. In some cases, card issuers operate their own rewards programs, such as Chase Ultimate Rewards or American Express Membership Rewards. In other cases, card companies work with airlines, hotels, or retailers to offer in-brand rewards and promotional perks. Either way, the more you use your card, the more you earn—whether it’s redeeming points for cash back or redeeming travel rewards.
The Good: When you use a rewards credit card for purchases, you can get cash or other rewards back with little more effort than applying for and using the card.
Some rewards cards have a very straightforward cash back rewards structure, such as: Like the Capital One Quicksilver Cash Rewards credit card, which earns a flat 1.5% cash back on every qualifying purchase you make.
Or choose a card like the Capital One Walmart Rewards® Mastercard®, which gives shoppers 5% cashback on their Walmart.com purchases, plus 2% cash back on restaurant and travel purchases, and 1% cashback on purchases anywhere else Mastercard is accepted.
The Score: In general, a FICO® credit score of 700 or higher is a good starting point.
The Fit: Reward cards are for people who use their credit cards frequently and/or make large purchases. If you travel a lot, especially if you use certain airlines or hotels repeatedly, increasing the miles or points that certain cards offer can be lucrative. The same applies to trade-branded bonus cards: frequent buyers see the greatest benefit with certain traders. Reward cards are also good for people who don’t mind learning the system to earn points faster or get enough travel Rewards to take the vacation you’ve dreamed of. Ultimately, these cards reward people who are committed enough to learn how programs work — and who make enough purchases to earn cash back or rewards.
The caveat: Reward cards do a great job of encouraging you to use your credit card. But if you’re trying to limit your credit card use — either because you’re carrying large balances or you’re trying to avoid a balance — this may not be the best approach for you.
Premium Reward Cards
Premium reward cards have the most prominent benefits.
The Good: The rewards and perks you’ll find with premium Reward cards are undeniably alluring.
The Score: You need a very good to exceptional FICO® credit score.
The Fit: Premium rewards cards are best suited for experienced card users who are already heavy credit card spenders. They also pair well with super consumers of a particular brand.
If you travel a lot and prefer to stay in Marriott hotels, for example, the Marriott Bonvoy Brilliant™ American Express® Card can offer generous rewards. This card earns you 75,000 bonus points when you spend $3,000 in the first 3 months. In addition, she earns 6 points for every eligible dollar spent with the card at hotels participating in the Marriott Bonvoy™ program and an increased earning percentage on US restaurant purchases and flights booked directly with airlines. Conditions apply. Because the interest rates on premium Reward cards can be high, they are best suited to cardholders who pay their balance in full each month. If you normally carry money with you, the interest and fees you pay may exceed the value of your premiums.
Types of Credit Cards For Major Purchases Or Transferring Debt
Sometimes saving interest is enough as a reward. If you tend to have credit card balances or have a significant amount of existing credit card debt, it’s best to find a card with a low-interest rate or with an introductory offer of 0% APR for purchases or balance transfers. However, before considering these options, make sure you manage your finances carefully and don’t get stuck in a debt cycle. These cards can help you save money but work against you if they only encourage you to take on more debt.
Prepaid Credit Cards
Balance transfer offers that allow you to fund your existing credit card debt with little or no interest over six to 18 months.
The good: Cards with balance transfer offers often don’t come with lavish rewards. However, if you’re trying to manage existing card debt or want low-cost access to revolving credit, these may be the most financially advantageous options for you.
The bottom line: You usually need good credit to qualify for balance transfer offers and cards with 0% promotional interest or low revolving interest. Card issuers want to know that you have little credit risk because they allow you to transfer money at a low-interest rate.
The Fit: Balance transfer cards are good for those with existing credit card debt and good credit who want to lower their interest rates.
The caveat: You’ll likely have to pay a 3% to 5% fee for balance transfers, so do the math to make sure you save money with a wire transfer.
0% introductory APR cards
Paying less interest is always a good thing, and a card with a 0% APR introductory period may give you more time to make purchases and avoid paying interest.
The good thing: 0% APR introductory cards give you the ability to fund large purchases and can be a money-saving option rather than borrowing for a similar amount, as long as you plan to pay them off at the end of the zero-interest period. If you are using a 0% intro APR credit card, you should check how your purchases compare to your credit limit, as high balances can affect your credit utilization, which is an important factor in your credit score.
The Score: Good to excellent credit is usually required for cards with an introductory period of 0% APR.
The caveat: Since introductory offers eventually expire, read the fine print to understand how long the 0% APR period lasts and what interest rate you’ll pay once it expires.
Types of Credit Cards For Students, Bad Credit, Or Borrowing
What if you’re just starting – or starting fresh? Some credit cards are specifically designed to help rebuild students, new borrowers, and those with bad credit.
Students with limited income and credit can use student cards to build and build credit. Rewards, benefits, and lines of credit on student cards are usually modest, but they often exceed the rates and fees on subprime cards and offer additional benefits over paying with cash or debit cards. Credit cards can come in handy during college, whether it’s for emergency expenses or managing cash flow. They will also help you learn the basics of debt management. Students who use their cards responsibly while in college can do so with a little credit history and a good credit score to show for it.
Secure credit cards
Secured credit cards can open doors for people with bad credit or no credit history. A secured card requires a deposit that the card issuer will keep if you default on the account. For example, you may be approved for a secured card with a $1,000 limit, but you must make a $1,000 cash deposit, which the card issuer uses to cover an outstanding balance that you don’t pay. Secured cards can be a great way to build credit. As long as you keep your credit usage low and pay your bills on time, a secured card can help you build your credit score and history. You will usually get your deposit back if you close the account in good standing or upgrade to an unsecured card through the same issuer.
In general, people applying for a credit card with bad credit tend to find a different range of options than those with good to excellent credit. Interest rates can be higher; The costs can also be higher.
But starting small and doing business wisely is a solid way to build. For example, the OpenSky® Secured Visa® credit card does not require a credit check to be approved and reports all payment information to the credit reporting agencies, who can help you assess and build your credit score.
Retail credit cards
Some retailers offer their business credit cards. Nordstrom and Macy’s are two examples. These cards can be either “open-loop” cards, meaning they can be used anywhere, or “closed-loop” cards, which only work for purchases from the respective retailer. For example, you cannot use your Closed-Loop Target REDcard™ credit card at the local gas station. The best of these cards may give you access to special bonuses, discounts, and promotions. On the other hand, interest rates can be high and late payments are reported to the credit bureaus. Get the details to decide if it’s worth buying and keeping an extra card, especially one that restricts you to a specific seller.
Debit cards differ from regular credit cards in that cardholders must pay their entire bill balance each month. American Express is currently the only major card issuer to offer charge cards. While it may not sound appealing to pay off your full balance every month, it can be a useful mechanism for managing your money: you get the convenience of a card without the possibility of getting into debt.
Business Credit Cards
A designated business credit card can help you maintain the separation between business and personal finances. Many have useful tracking and reporting capabilities. Reward cards can be an incentive for business purchases, such as office supplies or advertisements. If you use a business credit card to manage large transactions each month, you can potentially generate significant rewards. For many business owners, the availability of a business credit card can make managing liquidity issues easier.
Small business cards work the same way as consumer credit cards. Small business owners often rely on personal guarantees and loans to make purchases and keep their businesses afloat. Your personal credit history and score can also determine which small business card is best for you. Large corporations, government agencies, and nonprofits may qualify for corporate cards, which provide lines of credit to an organization rather than to the individual business owner. Business cards depend on and affect business credit and may not be available to independent contractors, freelancers, and other small businesses.
Other types of cards
A few other types of cards are worth mentioning:
Virtual credit cards replace your regular card details when you want to make secure transactions. These “disposable” account numbers route transactions through your regular credit card account, but you can hide your actual account number. Virtual cards are available from many providers, including Citi cards and Capital One’s Eno program. You can also sign up for third-party services like privacy to create a virtual card number for your existing account.
A prepaid card is loaded with cash and can be used for purchases until the balance reaches $0. You can buy them with predetermined dollar amounts, e.g. B. $50 or $100, or you can purchase a card that you can use to load it and transfer money to the card. Anyhow, with a prepaid card you can pay in the same way as with a credit card, except that there are no balances associated with it.
Prepaid cards are a convenient alternative for people who don’t have a credit card. They can feel less risky than a traditional credit card, or even a debit card: if your prepaid card is compromised — or the card itself is lost — the only risk is the dollars you loaded onto the card. A thief cannot access personal information or use your line of credit. However, unlike a secured credit card, a prepaid card doesn’t help you build credit when you’re just starting. But it can be a good substitute for a credit card and is easy to get for anyone with cash.
Cards for Kids
If your child needs a payment card for emergencies, you have several options. Prepaid cards can be a useful way, or you can make your child an authorized user of your credit card account. If your child is 18 or older, you can also help them apply for a credit card, which will help them build credit and provide them with an easy payment method.
Greenlight is a children’s debit card that comes with a variety of parental controls. With the Greenlight app, parents can instantly transfer money to their kids’ accounts, set up expense management, receive transaction notifications, turn cards on and off, and more. Greenlight isn’t a credit card, but it does give kids access to many of the payment features that a credit card has, along with some digital safeguards for parents.
Types Of Credit Cards Based On Acceptance Qualifications
The credit card business is all about evaluating and minimizing risk to ultimately maximize profit. And determining who needs to be approved for which cards are a big part of that. Here are some of the key factors that credit card companies consider when making these decisions:
- Credit history: There are a reason credit card companies “pull” your credit reports after you apply for a credit card: They want to see how you’ve used your balance in the past because it’s the best predictor of future performance. As you may already know, credit scores are based on the information in these reports. And we’re all rated as excellent, good, fair, limited, or bad credit, depending on the nature of that data. Likewise, there are credit cards for those with excellent, good, fair, limited, and bad credit. Of course, people with excellent credit scores get the best deals.
- Income and Assets: Credit card companies are required by law to determine whether an applicant will be able to make at least the minimum monthly payments required to maintain an upper hand on a new line of credit. This includes evaluating each applicant’s income and assets.
- Debts and Liabilities: Considering only an applicant’s income and assets would misrepresent their ability to pay. Issuers must also factor in debt to get a good idea of an applicant’s disposable income. How much money you have available for a new line of credit directly affects your ability to be approved for a good account.
Taken together, these three factors make up your overall “credit score” and determine what types of cards you can be approved for.
Choose the Credit card type that’s right for you before signing up
After choosing the type of credit card that fits your budget and goals, the next step is to decide which specific card to choose.
Capital One has a handy credit card comparison tool that you can use to search for credit requirements, reward types, and other factors to find the right credit card for you.
And with Capital One’s pre-approval, you can find out if you’re pre-approved for a credit card before you sign up. It’s fast and doesn’t hurt your credit score.
Bottom Line – Types Of Credit Cards And Their Uniqueness
There are many different types of credit cards and over 1,000 individual offers. But all that matters is finding the right one for your needs. And there are a few ways to do this, some easier than others.
However you decide to look for the right credit card, it’s important to remember that you don’t have to find one card for everything. There are no perfect credit cards, so the best way to get the best deals is to build a collection of cards that excel in specific areas. For example, you can have a cashback credit card for everyday purchases and get a 0% credit card before you buy a big-ticket. However, do not apply for multiple cards at the same time as this could damage your credit score.