What Are the Different Types of Credit Cards?

Ditching cash for credit cards is slowly seeping into the financial habits of thousands of Americans, and for a good reason.

It’s easy to see why no one wants to fill their wallet with bills anymore. Credit cards are easy to carry, don’t take up too much space, can hold virtually any amount of money, and can be anywhere, from gas pumps to local restaurants and the post office.

If you’d like to join the party and ditch cash for good, the first thing that you need to do is to determine which type of credit card you need. Depending on your status, occupation, financial situation, and credit history, there are ten major types to choose from, which are:

Plain-Vanilla Credit Cards

As the name indicates, plain-vanilla credit cards are easy to understand and use, and they don’t offer any rewards or perks. They’re designed for the average user looking for a no-frills card that replaces cash without incurring fees or interest if they pay on time do not carry a balance, which explains their growing following and user base.

As plain vanilla cards don’t come with special features, rewards, or annual fees, they’re basically the same from one issuer to the other, and their credit limit depends on the credit history of the cardholder.

Prepaid Cards

Although prepaid cards aren’t really credit cards, as they won’t help you rebuild your credit score and don’t come with finance charges nor minimum payments, many people use them as a way to save on money when they’re on a budget.

You need to load money onto a prepaid credit card before being able to use it. When you make a purchase, the sum gets deducted of the card’s balance, and you won’t be able to make any payments when the balance reaches zero. The bright side? You won’t have to pay any credit debt the next month, making them an ideal way to restrict your spendings.

Charge Cards

What’s unique about charge cards is that they don’t have a preset spending limit or minimum payment, as you need to pay the balance in full at the end of each month. Because of that, you usually need a good credit history to qualify for this card. Should you miss the payment, you may be subject to charge restrictions, fees, or card cancellation, depending on your initial agreement.

Balance Transfer Credit Cards

If you have a lot of credit card debt, a balance transfer credit card may be the best way to go. Why you might ask? Well, they allow you to transfer your balance from your current card to a new one and give you an introductory period of 6 to 12 months in which you can pay your balance with low to no interest whatsoever.

Obviously, the longer the promotional period and the lower the promotional rate, the better the card, but they depend on the cardholder’s creditworthiness. You need to meet certain criteria if you want to benefit from a 0-interest rate balance transfer, such as a minimum of two transactions per month. Also, you may have to pay a one-time balance transfer fee at the very beginning, which may get up to 5%.

Low APR Credit Cards

If you carry some credit debt or balance month-to-month, low APR or low-interest credit cards are an excellent option to consider, but just like balance transfer cards, you’ll need a good credit history to benefit from the best rates.

Limited-Purpose Cards

A limited credit card is one that can be used at a single location, such as gas credit cards and store credit cards, and they come with a minimum payment and finance charge. If you shop at a specific retailer frequently, you might want to check whether they offer a credit card with extra perks.

Rewards Credit Cards

Just as the name indicates, reward credit cards are those that offer incentives, such as airline miles, cash back, gift certificates, and discounts at different retailers, on every purchase you make using your credit card, and each dollar charged on the card. These cards require decent credit for approval, and there are six types of them:

  • General reward points credit cards, which earn you points that you can exchange for a verity of items, including gift cards and plane tickets.
  • Cash back credit cards, which earn you cash rewards on every purchase you make.
  • Retail rewards credit cards, which earn you points on the purchases you make at the respective retailer.
  • Gas cards, through which you can earn points on all your purchases along with some bonuses for buying gas or having auto maintenance done at either a particular co-brand for brand-specific cards or any company for general gas cards or.
  • Hotel points credit cards, which give you bonus points on the purchases you make at the respective hotel chain, in addition to the points you earn for your other purchases.
  • Airline mile credit cards, which earn you points that can be redeemed for plane tickets and air travel-related-items.

Secured Credit Cards

Secured credit cards are designed for those with bad credit history. Therefore, they require you to deposit collateral that’s usually equal or greater than your credit limit when opening a new account. In a way, Secured Credit Cards are pretty similar to prepaid cards, but they do allow you to rebuild your credit history to move on to an unsecured card later on.

Student Credit Card

More often than not, young college students don’t have enough credit history to qualify for one of the credit cards mentioned above. That’s where student cards come in to save young adults; giving them a higher approval rate compared to other credit card types. Typically, a student needs to be enrolled in a four-year college or university to be approved for this credit card.

Some student credit cards come with extra perks, such as low-interest rates on balance transfers and some rewards, but that’s not the main purpose of this type of credit card.

On the flip side, student credit cards can also be secured, which means that they might require a cash deposit as collateral, and they tend to have a higher interest rate.

Business Credit Cards

Just like student credit cards, business credit cards are designed for a specific demographic group, which includes business owners and executives. These cards have the same characteristics as regular credit cards, but they also come with some extra perks that benefit those in the business world, such as separating personal and business expenses, expense management reports, and high credit limits.

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