Looking to get a credit card? Before you fill out a credit card application, you need to decide what type of credit card will work best for your specific situation. The following is a brief description of the common types of credit cards available through banks or other financial institutions.
Standard Credit Cards
Credit Cards with Rewards Programs
Credit Cards for Bad Credit
Specialty Credit Cards
Standard Credit Cards
Standard credit cards are the most typical type of credit cards. These are unsecured credit cards that are readily available from most banks and financial groups. These types of cards vary in how the annual percentage rate (APR) is offered or calculated. Here are several examples:
Balance Transfer Credit Cards
Balance Transfer Credit Cards are designed to allow consumers to transfer a higher interest credit card balance onto a credit card with a lower interest rate, thus saving them money in interest charges. For example, if you transfer a balance to a credit card with a low introductory APR of 0%, the APR for this balance will typically stay at this 0% interest level for a specified period of time, thus potentially saving the consumer hundreds of dollars in interest charges. The terms of balance transfer credit cards can vary between offers, so be sure to thoroughly read the terms and conditions for each specific card.
Low Interest Credit Cards
Low Interest Credit Cards offer either a low introductory APR that changes to a higher rate after a certain period of time or a low fixed rate APR. For example, you may get an introductory APR credit card with an interest rate of 5% for the first six months and 10% thereafter. Then, for the first six months, any purchases or balances you carry will be only charged a 5% annual interest rate. However, any new purchases or balances that carry over after the six-month period will now be subject to a 10% APR.
Many people take advantage introductory APRs to make larger purchases, so that they can take several months to pay them off. Low APR Credit Cards can help save consumers a lot of money on interest charges. However, be sure to read all the terms and conditions of the reduced introductory rate, so that you will not be penalized by fees or accumulated interest.
Credit Cards with Rewards Programs
Credit Cards with Rewards Programs usually "reward" the card holder incentives, rebates and even cashback rewards for purchases they make on their credit card. You can get additional airline miles, cashback rewards or discounts on merchandise for each dollar charged on such a card. Rewards Cards usually require better than average credit for approval.
Airline Mile Credit Cards
Put simply, airline mile credit cards or frequent flyer credit cards give you airline miles credits (or frequent flyer miles) whenever you use your card. Typically, you as the cardholder accumulate "points" based on the dollar amount of your credit card purchases over a period of time. Based on a predetermined point level, you can then redeem those points for airline travel (much like frequent flyer miles).
Each airline mile credit card is a bit different; therefore, be sure to read the fine details in the card’s terms and conditions to find out how many airline miles you gain for every dollar spent in purchases. Also, watch out for how many airline miles you will need to accumulate before you qualify for a free airline ticket. Finally, find out whether or not airline miles expire if you do not use them within a specified amount of time. Because airline mile reward programs can be costly for credit card companies, many airline mile credit cards come with an annual fee. These cards are great for people who frequently travel or for those who want to use their cards to plan vacations, but the associated fee might make them impractical for other types of cardholders.
Cash Back Credit Cards
Cash back credit cards give you cash rewards for making purchases with the card. The more the card is used, the more cash rewards you usually get. Most cash back rates are around 1% of your total purchases, excluding interest and finance charges. However, some cards offer a higher cashback percentage with increased usage while still others offer a higher cash back percentage at select merchants or for particular types of purchases. Since cash back programs are costly to the credit card companies, some cash back credit cards also have an annual fee, which can vary from $50 to $100. This type of card is particularly good for people who are faithful about paying off their balances each month. If used appropriately a cash back credit card can earn the cardholder a significant amount of money over time.
Reward Credit Cards
Reward credit cards are similar to cash back cards in that you can accumulate points towards a reward structure, which is based on how much you use the card over a period of time. Credit cards offer different reward programs and promotional offers often change, so be sure to thoroughly look over the card’s terms and conditions of each specific card before applying.
Typical rewards include:
- Gasoline rebates
- Entertainment rewards
- Store discounts for specialty store cards
Reward programs are costly to the credit card companies; therefore, many reward credit cards also require an annual fee, which could vary from $50 to $100. This card is particularly good for people who are faithful about paying off their balances each month. By minimizing their finance charges, such individuals will reap greater benefits from the associated rewards credit card.
Bad Credit and/or Credit Repair
Credit can easily go from good to bad with poor judgment, mismanagement of credit cards or simply a change in job or financial situation. This does not mean you cannot get a credit card. There are several options available for people who have had bad credit in the past and for those who are currently trying to repair their credit.
Depending on your specific situation, debt consolidation, use of introductory APRs on balance transfers or other options may be the best choice. However, if you still need credit or want to start repairing your credit by proof of action, there are several credit cards designed to help "rebuild" poor credit histories.
Secured Credit Cards
Secured credit cards require collateral for approval. With secured credit cards, a security deposit of a predetermined amount is needed in order to secure the credit card. Generally, the security deposit needs to be of equal or greater value to the credit amount. Collateral can come in the form of a car, a boat, jewelry, stocks or anything else of monetary value. Secured credit cards are for people with either no credit or poor credit who are trying to build or rebuild their credit history.
Often, cards that help to rebuild credit come with low credit lines ($250 or so) and additional fees may apply (application fees, etc.). Be sure to read over any terms and conditions for these add-on services before applying. Be certain of any fees you may incur before proceeding with the application process. If you use the card responsibly and pay all of your bills on time, however, you can ask for a credit increase down the road. The extra fees and low credit lines will be worth it if a secured credit card helps you get your overall credit back on track.
Prepaid cards are, in fact, not credit cards at all BUT rather are used just like credit cards, wherever credit cards are accepted. The advantages of prepaid cards is that there are no finance charges and they help you avoid debt, in that all purchases are paid for beforehand. With prepaid cards you determine the credit line. Generally speaking, a cardholder's credit line depends on how much money he/she transfers to the card. Therefore, there is little risk of running up credit card debt, while budgeting is made easier.
Although most prepaid cards do not charge finance fees, other fees may apply, including: monthly fees, startup or application fees, overlimit fees, ATM fees and more. Be sure to thoroughly look over the terms and conditions for each specific card before applying.
Specialty Credit Cards
Specialty credit cards are for individuals with unique and special needs for their credit use. Examples of these types of cardholders include business users and students. These credit card programs are designed specifically to meet the needs of these particular groups.
Business Credit Cards
Business credit cards are available for business owners and executives and have many of the same features as traditional credit cards: low introductory rates, cashback rewards, airline miles, etc. However, business credit card. can also have many additional benefits in comparison to traditional credit cards.
Some of these bonuses include:
- Business expenses kept separate from personal expenses
- Special business rewards and/or savings
- Expense management reports
- Additional cards for employees
- Higher credit limits
Every credit card is a bit different and promotional offers often change, so be sure to thoroughly look over the terms and conditions for each specific card before applying.
Student Credit Cards
Students generally have little or no credit history. Because of this quandary, students may often find it difficult to get approved for a traditional credit card. Luckily, student credit cards do exist. This type of credit card is set up to help students build up the credit history that most of them don't already have.
Student credit cards are often scaled back in terms of rewards, features and other benefits, but they can still be a valuable commodity. If used wisely, a student can take the first step towards building a solid credit history with a student credit card.