Types of credit cards
There are numerous kinds of credit cards available on the market today, and sometimes it can be difficult understanding the differences between them. While certainly not a comprehensive list, here are some of the most popular types of credit cards available, or the terms used to describe them, that you might come across while researching which card to sign up for.
Rewards credit cards – these are designed to accumulate points or rewards that can then be redeemed for items of your choosing. Points are often earned based on the dollar amount of purchases you make, and are tallied on your credit card bill each month. When you have earned enough points, you can shop the credit card company’s reward catalogue and cash in your points for popular items like kitchenware and gift cards. Sometimes these types of cards can also be used for a credit towards travel, as in a redemption of points towards a plane ticket or a discount at a hotel chain. Also, if it is a store-specific card, one that can only be used at the retail store it was issued from, you may be offered the option to take a small discount at the register in exchange for some earned points. This is a good idea if you are looking to save some money at the point of purchase, but keep in mind that these discounts are usually a lower value than saving up your points and redeeming a number of them on a large item.
Cash back credit cards work similar to , but you earn money instead of points. This is most often based on a percentage of your purchases, and get tallied on your monthly bill. The credit card company usually has a set month in the year that they offer you a credit on your bill equivalent to the cash back you earned. Some companies may permit you to request a credit on your bill when you have earned a certain dollar amount – for example, you may be able to get a credit for each $10 increment you have already earned. There can be a set percentage across the board for all purchases – 0.5-1% is what you would most likely earn. Other cards have categories that you can earn more in. For example, gas station, grocery store, and department store purchases might earn 2% cash back, while other purchases receive 0.5%. A few cards even allow you to choose the categories that you earn the most cash back in, to maximize the money earned.
A secured credit card is a good option if you have a poor credit rating, or if you are just starting to establish your credit. With a secured card, you put a certain amount of money down as a deposit, and then you are allowed to use the card as you would a regular credit card. This allows the lenders to have a bit of security from people who may have gotten into trouble in the past. A secured card is different than a pre-paid credit card in that you do not need to put additional money on it each month in order to use it, you simply need to make the payments on money you have already charged.
Student credit cards are similarly made for people who might have a harder time getting a card than someone with good, established credit, but are targeted for those in school. The understanding is that students might have a more difficult time applying for a credit card due to their lack of a credit score and no established credit history, but also knowing that people have to start somewhere in building credit, and students can often be in need of a credit card, or simply want to start building a credit history as soon as possible. With specialized cards that are made for a set group of people, you have to be careful that you are really getting the best deal that you can. By providing a credit card more easily to someone without a history, they might not have as many perks or bonuses in the for of lower interest rates or rewards options. It is still a great avenue to get into the credit game, but just remember to do your research and know what you are signing up for.
The term ‘charge card’ is sometimes used to describe a credit card, but it is important to remember that there is a distinction between them. A charge card is a type of credit card that cannot carry a balance from month to month as a credit card can. Credit cards allow people to pay a minimum balance and have money carry over to the next month, while charge cards require that the holder pay the full balance of the bill on the due date, in order to avoid fees and penalties. There is nothing wrong with a charge card if you are able to pay off the balance in full every month, as long as you understand that it is not interchangeable with a regular credit card.
A limited-purpose or single-purchase card is yet another type of credit card that can be obtained. These ones are designed for specific uses, whether it is only one particular brand of store that it can be used in, or only one type of purchase. Department stores often have these types of cards, that can only be used in their stores. Often they might have high interest rates, but they also offer large discounts or perks on purchases to keep people using them. A gasoline card is another example, in which you can only purchase gasoline at a certain gas station chain. People often use these types of cards for the rewards and benefits they get at their favorite stores, and then also have a regular credit card for other purchases.
There are still other types of credit cards, but this is an overview of some of the most commonly used ones, and the ones you will encounter while trying to determine which one is best suited for you and your spending type.