The average American has about three or four credit cards. Credit cards are useful for a number of things. Not only can they be helpful in building credit, but credit cards are also handy for keeping track of business expenses, for traveling without the risks of carrying cash, and for stretching funds when finances are tight. Some people also use their credit cards for routine purchases, such as school supplies, clothing, and household goods and others only use them for online purchases. In fact, it’s impossible to make online purchases without a credit or debit card.
But deciding which type of credit card you need or qualify for is tricky. There are so many offers out there, how do you pick the right one? It all starts with knowing what the different types of cards are and what they’re useful for.
Standard credit cards
Standard credit cards are cards issued on a revolving credit account. Revolving just means that you can carry a balance from one month to the next. That’s different from account balances that must be paid in full each month. Standard credit cards are major credit cards for general use and do not require a deposit or collateral. The credit card company sets a spending limit, and the user can’t charge more than that amount until the balance is paid down or paid off.
Credit cards vs debit cards
Major credit cards are those that are issued by a member of one of the major payment networks. This includes Visa, Mastercard, Discover, and American Express® credit cards. It is important to note that these companies also issue debit cards. Debit cards are not credit cards. Debit cards require that you deposit enough money in your account to cover your purchases. Credit cards, on the other hand, allow you to establish a line of credit and pay it off over time.
Secured credit cards are the main exception to this rule, we’ll discuss those in a moment. For the consumer, the main difference is that credit cards let you build up your credit history, but debit cards don’t.
Secured credit cards vs unsecured credit cards
Most credit cards are unsecured. This means that the credit card company does not require you to put up collateral or make a cash deposit to get the credit card. Secured credit cards require that you make a deposit into the account or put up collateral worth at least as much as your line of credit to qualify for the card. These work much like debit cards, but many of these accounts do allow you to build up a credit history that can be used to improve your credit score and qualify for unsecured credit accounts.
Retail credit cards
Many retailers issue their own credit cards. These cards often use a major credit card network, like Visa, or Mastercard, but retail cards are not general use credit cards. Unlike major credit cards, retail cards are usually only used in that particular store. For example, if you have a Visa or Mastercard, you can use that at Wal-Mart or Costco or Target.
A retail credit card, such as a Lowe’s card or a Macy’s card, can usually only be used at that particular chain of stores. However, retail cards can also be used to buy from that company’s online store. These retailers might also partner with other businesses and allow you to use their card at their partners’ retail stores or online stores. Read the rules and regulations for that particular retailer to understand what an account there qualifies you for.
Gas credit cards
Gas credit cards work a lot like retail cards. You can use them at only that chain of gas stations, or perhaps with one of their partners. Usually, you can use gas cards for more than just gasoline. For example, if you have a credit card for BP or 7-Eleven, you can also buy their food and other merchandise on your gas card, including items in their convenience store.
Often, if the gas station features a restaurant, you can use your credit card for the restaurant, too. But be sure to ask about their policy before making any purchases. Unapproved purchases might get you in trouble at work.
Rewards credit cards
Rewards credit cards are credit accounts that come with some type of rewards program. Rewards programs include cash back programs, discount programs, or points programs, in which you can earn points that can be redeemed for things like airline miles, hotel visits, car rentals, or merchandise.
Most rewards credit cards come with a long list of rules, so you need to study yours carefully to make sure you get enough rewards to justify the annual fee for the card. Usually, rewards cards work best for customers who pay off their balances fully each month. Carrying a balance means paying interest, and the interest costs can easily cost much more than any of the rewards you get back.
Premium credit cards
Premium credit cards may have many different names across the industry. You may see them advertised as “gold cards” or “platinum cards.” They are only offered to consumers with the best credit ratings and a higher level of spending. Premium credit cards come with lower interest rates than most standard credit cards and offer no or low annual fees. These cards might also have very high credit limits, sometimes $10,000 or more. These cards also might come with extra perks like access to lounge areas in airports, round-the-clock concierge services, personal assistants, etc.
Low-interest credit cards
A low-interest credit card is one that comes with a very low interest rate. Introductory interest rates for these credit cards can be as low as zero percent. An introductory rate is an interest rate that starts out low and goes up after a certain length of time, such as six months or one year. These are good cards for people who carry a balance from month to month, and are only available to those with good credit. If you start to fall behind on payments, the credit card company may raise your interest rate, charge you fines and penalties, or both.
Balance transfer credit cards
A balance transfer credit card is one designed to allow you to transfer your balances from other credit card accounts onto the new balance transfer credit card. This is a great option if you are paying high-interest rates on a current credit account or want to consolidate multiple credit card balances onto a single account with lower payments. These accounts usually require pretty good credit ratings to qualify for. Many are also low-interest rate cards, so make sure you understand what your interest rate will be after the introductory rate expires.
Corporate credit cards
If your job requires you to be on the road a lot or to make purchases on behalf of the company you work for, you may be issued a corporate credit card. Or, if you own a business, you can get corporate cards to issue to your employees who need to make purchases for the company. Credit card companies issue their own rules for corporate accounts, based on the creditworthiness of the business. Additionally, your company may make its own rules about how, when, where, for what, how often, and how much employees can use corporate credit cards.
Getting a credit card
Getting approved for the right credit card requires careful planning. It’s a good idea to keep up with your credit score if you plan to apply for a credit card soon. Reducing your debt and making your payments on time is key to building good credit. When you’re ready to find a credit card that meets your needs, take the time to explore all your options.
FAQ on Types of Credit Cards
What are the different types of credit cards?
There are many types of credit cards. Standard credit cards, Credit cards with rewards programs, Airline miles / frequent flier credit cards, Credit cards for bad credit and Specialty credit cards.
What is the minimum credit score for a credit card?
Generally speaking, a credit score of between 300 (the lowest FICO score) and 650 is considered bad credit. However, some card issuers will consider scores of 550 to 650 as being simply poor credit and may consider you for an unsecured credit card.
What factors are important when choosing a credit card?
Some factors that you might want to consider when choosing your first credit card. Annual Fee, Interest Rate, Rewards, Other Fees and Credit Limit.
How can I avoid paying interest on my credit card?
The best way to avoid paying interest on your credit card is to pay off the balance in full every month before the end of the grace period. Grace periods are typically between 21 and 27 days. You can also avoid other fees, such as late charges, by paying your credit card bill on time.
Are you ready to get started on your new future with the right credit card for your needs and lifestyle? Search the best credit card offers now.