Types of Credit Cards
Credit cards are extremely useful for many reasons and situations, but anyone who is trying to get a credit card will soon realize that the process can be complicated. This is because there are a number of credit card options to choose from. Some people will not qualify for some cards, and not every card benefits all users. It is best for people to decide which card fits their needs most before they start the card application process. Below is a list of the common credit cards that one may apply for as well as a brief summary of each that highlights their use and benefits. The list of typical credit cards includes:
- Standard Credit Cards
- Credit Cards with Rewards Programs
- Credit Cards for Bad Credit
- Specialty Credit Cards
Standard Credit Cards
These are the most common kinds of cards issued by financial institutions, and they are classified as unsecured cards. They have no set APR or annual percentage rate because this is calculated with and affected by varying factors. Cards falling under this category include balance transfer and low interest credit cards.
Balance Transfer Credit Cards
There cards allow users of a credit card with a higher interest rate to transfer their owed balances to one with a lower rate, hence, the name. The aim is to avoid spending too much on interest rate payments. A prime example of this is transferring to a card offering 0% APR for a specified period of time, which means the cardholder would no longer have to pay interest on the card during that time period. Whether the card helps the cardholder depends on the exact terms and conditions, so peruse this type of card's information carefully before proceeding.
Low Interest Credit Cards
This category of cards can work in one of two ways: a) they can offer a fixed APR that is low, or b) they can provide a low introductory APR that will change to a higher rate after a period of time. The second option is based on the exact stipulation of the lending facility, so a company may offer a card with 0% to 5% APR in the first four to 12 months. However, once the specified period ends, the APR moves to 10% (or whatever the regular rate is). What this means is that purchases during the promotional period will be calculated with the introductory APR, and everything else with be calculated at the regular percentage rate. The regular APR can increase with time.
Often, users of these cards make their largest purchases during the introductory APR period because they get a few months to repay the money used. It is true that people can save a lot due to the low interest, but they should not neglect to read the fine print before getting one of these cards because they do not all work the same. That being the case, what works with one may not work with another.
Credit Cards with Rewards Programs
These credit cards offer users rebates, cash back or incentives as a kind of reward for using them. Rewards can be in the form of discounts per dollar used, airline miles or cash. Because of this, credit approval is not as easy or low as the previously mentioned cards. The basic characteristics of these cards are:
Airline Mile Credit Cards
Cards referred to as airline mile or frequent flyer cards offer holders credit miles in the form of “points” each time they book a flight using the card. There is usually a dollar-to-point ratio, and the points are accumulate. Based on the conditions of the card, they can be redeemed after a certain time or when a certain number is earned.
Each card is different, and how many points per dollar one earns will depend on the card. Other factors, such as the amount of miles needed before they can be redeemed for a free ticket and how points expiration works (if any), will differ as well. These cards are usually a great expense to the issuing companies, so often they carry annual fees and are not a wise choice for those who do not travel regularly. This is because frequent travel is the only way to really benefit from them. They are also ideal for planning regular vacations.
Cash Back Credit Cards
Cashback cards offer cash rewards for purchases made. Typically, the rate is 1% of the total purchases charged to the card, not including any finance or interest costs incurred. As a general rule, the more money spent the bigger the reward one gets; however, this is not always the case. Instead of rewarding for frequent use, some cards reward users who shop at specific merchants more than others.
Cards can also offer a higher return percentage on select goods and services. An annual fee of $50 to $100 will more than likely be charged on these cards because they cost the issuing company a lot of money. Additionally, while this type of card can save people money over time, they are not recommended for those who do not normally pay their monthly usage in full because charges could quickly erode any profits made from the cashback feature.
Rewards Credit Cards
These and cashback cards are very similar in that users accumulate points as set out by a reward program that is structured around how often a card is used over a specified time. Rewards and promotions can change often or without notices, so applicants need to read all the information on the cards to understand what to expect. Typical rewards can be rebates on gas and entertainment as well as discounts when using specialty cards in-store. People who form the habit of clearing full balances on time can benefit greatly from these. Due to the high cost of maintaining these cards, annual fees can range from $50 to $100.
Credit Cards for Bad Credit
It is easy for someone's credit score to be ruined by a simple mistake, failure to manage credit cards properly or bad judgment. Additionally, any change in one's financial situation or a change of employment can negatively impact a credit limit. When things like this happen, people can still qualify for credit card facilities because there are those that are geared towards helping them salvage their credit histories. Usually, people opt for debt consolidation or cards with introductory APRs as a way of repairing the damage, but additional measures may be necessary. In such a situation, there are a number of secured credit cards that can help.
Secured Credit Cards
Secured credit cards are only approved if the applicant can provide the collateral the issuer require. A deposit equal or exceeding the cards credit limit is usually required in order to get such a card, and the collateral can be a car, stocks, jewelry, a boat or something of a monetary value. The credit line will be low, $250 for example, and the card may carry more fees than some traditional cards. With proper use, a higher credit limit can be requested, and one's credit history could be restored. After that, one may transition to a card that is more suitable. The terms and conditions for these can be a little more complicated, so it is important to read them carefully and ensure that they are clearly understood.
Prepaid Credit Cards
These are not credit cards because there are no preset spending limits, but they do offer the convenience of traditional credit cards because they are accepted anywhere traditional cards are used. The main benefits of prepaid credit cards include better money management and no finance fees. Cardholders can only use what they put on the card, so this helps them stay out of debt, therefore, late payments, fees and interest are avoided. Also, being able to trace one's spending habit online simplifies budgeting. It is advised that all terms and conditions are read before applying for a prepaid card because some fees may be applicable. These include ATM, over-the-limit, applications, activation and monthly fees.
Specialty Credit Cards
This is a category for cards that are geared towards a specific set of consumers who need a credit facility to meet special needs. Students and business customers are two prime examples. The aim of each specialty card is to address the main needs or issues of the group it is designed to cater to.
Business Credit Cards
As the name suggests, these cards cater to business customers. They carry many of the benefits that traditional cards have, such as cashback rewards, travel miles and low introductory rates, but the intended client base is company owners and executives. Because of the intended consumer, they also carry other benefits such as higher spending limits, cards for other employees (usually at no extra cost), monthly expense reports as well as other money management tools. They also offer the ability to track business and personal spending independently.
Some cards are best for businesses of a certain size, while others may fit a certain type instead. How beneficial a card is will depend on what it offers. The exact nature of each card will differ, so applicants are urged to look at the details for each before getting one.
Student Credit Cards
Students often have a hard time qualifying for traditional credit cards because they do not have a credit history, or there is little information to use. Initially, they had to rely on their parents' credit histories to get one. However, student credit card facilities were introduced as a response to this problem. These cards offer them a way to establish a credit history over the course of their studies so that they are prepared to deal with situations requiring credit approval when they graduate.
A student credit card normally has a lot less to offer than traditional cards in terms of benefits, features or rewards; however, they are still valuable. In fact, with proper use, a student could build great credit history that can make life a lot easier in the future.
For more information on credit cards and related topics, please see our Credit Card Tips & Advice.
To apply for a credit card that fits your needs, please visit us at CreditCardXPO.com.
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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXPO.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.
Tips & Advice
- APR - Annual Percentage Rate, the yearly percentage rate charged when a balance is held on a credit card.
- Intro APR - A low interest rate offered for a limited time, usually for the first 6 to 12 months.
- Balance Transfer - The act of transferring the whole or partial balance of one card to another card.
- Annual Fee - An annual (yearly) fee associated with having a credit card.