What is a Credit Card?
A credit card is a plastic or metal card that is issued by a bank or a financial institution and offers perks like cash back, discounts, reward miles and many more.
Based on the types of rewards, users and various other characteristic cards are divided into different types. In this article, we will learn more in detail about what these categories are and what they offer.
Importance of Understanding Different Types of Credit Cards
Each type of credit card is designed for a specific purpose such as travel, business, balance transfer and so on. Thus by understanding different types of Credit cards you can choose the one which best suits your lifestyle and financial goals.
Different Types of Credit Cards Explained
Rewards Credit Cards
Rewards credit cards are simply cards that offer various rewards on your spending. These cards can be highly beneficial for people who frequently use credit cards in their day-to-day life. The rewards rate offered by rewards credit cards differs from card to card which is why you should choose the card that suits your spending habits.
Some of the popular rewards credit card types based on the rewards program offered by credit cards are as follows:
Cash Back Credit Cards: These cards offer cash back on your purchases. Cash back rewards may be flat rate on all categories or may vary from category to category.
Travel Rewards Credit Cards: With these cards, you earn points or miles on your purchases which then you can redeem for travel bookings
Gas Credit Cards: these credit cards offer higher reward rates on gas station purchases making them suitable for people who travel a lot with their vehicles.
Grocery Credit Cards: with these cards, you earn better rewards on grocery store purchases
Some popular cards in this category include Chase Sapphire Preferred® Card, Capital One Venture X Rewards Credit Card and Wells Fargo Active Cash® Card.
Business Credit Cards
Business credit cards are specially designed for small business owners with unique business-specific features. In addition to normal credit cards, business cards have features where you can add employee credit cards to your account, get detailed expense reports, track spending and more. Some of these cards offer better rewards on business-related categories such as advertising or shipping. It is worth noting that a person not having any business could also qualify and use these cards for the benefits that they provide.
Capital One Spark Cash Plus, Ink Business Preferred® Credit Card and The Blue Business® Plus Credit Card are some very popular business credit cards available in the market right now.
Student Credit Cards
Student credit cards provide a great option for college students who don’t have any credit history or no income. These cards usually have a lower credit limit and are easy to qualify for than regular cards. These cards help students build and establish their credit right from their school days making it easier for them to apply for loans or better cards when they graduate.
If you are a student and looking for your first card then do check out Discover it® Student chrome, Chase Freedom® Student credit card and Discover it® Student Cash Back.
Secured Credit Cards
Secured credit cards are designed for people who have no credit history or a very bad credit score. These cards require a security deposit at the time of application and if you are approved then the security deposit is to set up your credit limit.
These cards don’t usually provide great reward programs but help you build or improve your credit score. If you use a secured credit card responsibly and increase your credit score you can upgrade your card or apply for a better rewards credit card. However, if you are not able to pay your bills the card issuer may keep your security deposit.
So if you have a bad credit score you might want to check out Capital One Platinum Secured Credit Card and OpenSky® Secured Credit Visa® Card.
Balance Transfer Credit Cards
These credit cards often offer 0% APR on balance transfers. If you want to pay off the remaining balance of another credit card for a low-interest rate then the Balance Transfer credit card might be the right choice for you.
The 0% balance transfer offer only last for a certain number of months starting from the date of account opening. Hence you must make sure that you plan your debt payment within this period. Typically these offers last for 6 to 20 months depending on the issuer.
Check out Citi® Diamond Preferred® Card and BankAmericard® credit card for the best offers on balance transfers.
Zero Annual Fee Credit Cards
As the name says no annual credit cards don’t have any yearly charges which means you can carry them for free. Keep in mind that other interest rates and fees are present which can be easily avoided. These cards don’t have many extraordinary features and offer as cards with annual fees do.
Some of the best zero annual fee cards available are Wells Fargo Active Cash® Card, Discover it® Cash Back and Chase Freedom Flex℠.
0% Intro APR Credit Cards
A lot of cards are offering a 0% APR on purchases for a specific duration from the time of account opening. This could be a very useful perk for someone who is planning to make a lot of purchases in a short duration as the regular APR could be as high as 15-25%. However, it is important to note that you must have a proper plan to pay off before the offer period ends. After this, the regular APR will be applied.
Cards offering some of the best Intro APR offers include Discover it® Cash Back, U.S. Bank Visa® Platinum Card and Capital One VentureOne Rewards Credit Card.
Co-branded Credit Cards
Co-branded Credit Cards are issued by banks or financial institutions in partnership with stores, airlines or hotel chains. These mainly include hotel and airline cards specifically made for travel purposes. These credit cards offer points and miles which can be used for various rewards allowed by the rewards program. These credit cards also have unique perks which make them a suitable choice who like to travel a lot.
Store Credit Cards
These credit cards are issued by retail departmental stores. Store credit cards are of two types closed loop and open loop. Open-loop cards can be used anywhere that accepts the credit card network whereas closed-loop cards can only be used in a specific store.
The store credit cards provide some store-specific features like better discounts and longer return periods. Do check the interest rates and fees before applying because some of these cards have very high interest rates.
How to Choose the Right Type of Credit Card?
It is very crucial to choose wisely between the different types of credit cards to maximize your reward potential as well as build your credit score.
Here are some of the points you need to follow while choosing the right type of credit card type for you.
- Your spending habits
- Interest rates and Fees
- Rewards and Benefits
- Some special perks on offer
- Required credit score