Ben Todd | Jun 3, 2017 | 2
11 Types of Credit Cards Explained
There are several different types of credit cards offered by several different companies and banks that it can be difficult to distinguish between the cards.
Different types of credit cards are best suited if you fit a specific profile. What may be the best card for you may not be the best card for someone else.
This article will guide you through 11 different types of credit cards.
Low Interest Credit Cards
Low interest credit cards generally offer lower interest rates then credit cards that offer a rewards program. They often have a fairly long introductory phase where their is 0% interest to be paid. This no interest introductory period usually ranges from 12-18 months. After this period expires you will start paying interest in the range of 10.99%- 21%, however most of the interest rates are lower then the average card. Furthermore, most of the introductory phases also include 0% interest on any balance transfers.
Who These Cards Best Suit?
Low interest credit cards are great if you will be applying a large amount of money on your credit card especially during the introductory phase because you will not have to pay interest if you pay off the product before the introductory phase expires. Low interest Credit cards often are accompanied by no yearly fee, and have low fees in general.
These cards may seem like a no brainer, however there may be a better suited card out there for you. If you don’t plan on continually carrying a balance on your card to take advantage of the low interest rate then you may be better suited a credit card that offers some type of reward/cash back program. If you have a low interest rate card and pay it off completely and don’t carry a balance on your card then you are better suited for a credit card that does have a bit of a higher interest rate. However it is offset if you are regularly paying off your card and you could reap the benefits of a rewards program.
Balance Transfer Credit Cards
Balance transfer credit cards are similar to low interest rate credit cards. With a balance transfer credit card consumers can transfer all of their credit card debt from one or more cards onto the balance transfer credit card.
These cards can save significant money on interest charges. For example if you owed $5000 on two different credit cards you could transfer both balances onto the balance transfer credit card and save a lot on interest especially during the low introductory APR interest rate (which is for a set period depending — most offers are 12 months, but some can be even 15 months). These cards are often used when consolidating credit card debt.
Who Balance Transfer Cards Best Suit
People who have debt issues or a credit card balance (usually larger) distributed between multiple cards. You can use a Balance Transfer Card to consolidate your credit card debt into one card which makes it easier to keep track of payments (you’ll be paying down a single, unified debt on one card) AND you get a lower interest rate which means you can pay down the debt easier. Note that these are best for the low APR interest rate deals. Afterwards, you’ll have to look and see if the card is still worth it.
Cash Back Credit Cards
Cash back credit cards offer and allow you to earn cash rewards every time you make a purchase using your credit card. Therefore, the more you use your card the more cash back rewards you will accumulate.
On average cash back rewards pay 1% of what your total transaction. For example if you spend $100 dollars on an item you would receive $1 dollar added to your cash back balance. This may not seem like a high amount but over time it can accumulate and become a very rewarding benefit — especially if you make a point of doing all (or as much) of your financial transaction on that card each month. For example, if you pay all bills and purchases on that card instead of from your bank account, you may just be able to rack up 1000-5000 USD a month on that card doing stuff you NORMALLY financially. This may yield 10 to 50 dollars a month in free money.
- One thing credit card’s will offer is for every quarter or month there will be a specific category where you can earn up to 5% cashbook for every purchase you make in that category.
- You usually need to accumulate a specific cash back before balance before you can redeem the funds.
- The downside is some of these cards usually come with an annual fee that can sometime range up to $100 dollars.
Note that if you shop around, you can find some credit cards that may offer you 2% back (or more). You may also want to look at reward point cards which often give 4-5 percent back when you convert the rewards to actual cash value.
Who Cash Back Cards Best Suit
People who make a lot of purchases each month on a credit card OR who are willing to rearrange banking to utilize their credit cards to pay most of their bills. Here’s one example. My stepfather owns a business. He uses a high balance cash back card to make all inventory purchases every month on his card. This ranges from 20,000 to 70,000 dollars a month being charged to the card, which results in 200 to 700 dollars of cash back.
General Rewards Point Credit Cards
These credit cards allow you to earn points when you make purchases with your card. Over time the points accumulate and can be redeemed for a variety of items such as products, gift cards, hotel and travel discounts etc. These cards tend to have an annual fee however it is not a very large fee. The interest rates on these cards tend to be in the average range.
Who Reward Point Card are Good For
These are good cards for people who are point collectors or mile hackers. If you use these RIGHT, you can rack up a lot of free reward points. I know more than a few people who uses these type of cards to get free hotels and air travel all the time.
Note, if you are not the type of person who tries to maximize point value and just want to use a card without thinking, you probably are better off with a different type of card. These cards can be rewarding, but only if you use them strategically for maximum value.
Hotel/Travel point credit cards.
These credit card are strictly related to hotels and travel such as airlines. Often the cards will even be branded by that particular hotel or airline. Purchases using this card allow you to accumulate points and cash back to use for hotel stays, or for purchasing plane tickets etc.
Furthermore, purchases made with the hotel or airline your credit card is branded with include further bonus points rewarded. For example with the Mariott Rewards Credit card you earn extra points anytime you pay for a stay at the Mariott with the branded credit card. Airline branded credit cards will often reward you with air miles when you use your card to purchased flight tickets with that particular airline.
These cards tend to have a fee and the interest rate are seen as average. These cards are best suited for anyone who travels on a frequent basis.
Who These Cards are Good For
If you frequent a specific hotel chain often OR an do a lot of flying, getting a brand specific hotel/travel point card can really give you a bonus amount of miles/points provided you frequent the same chain / business many times. These cards are good for business people who often are frequent flyers.
Gas Credit Cards
Credit cards based on gas allow you to earn on average a 1-2% rebate on regular purchased and up to a 5% rebate when using the card to purchase gas.
There are two types of gas credit cards:
- A general gas credit card that treats all gas companies equally.
- A brand specific credit card that rewards you for going to that specific gas station.
If you tend to get gas at the nearest station and aren’t loyal to a particular gas station then the general card is best suited for you. On the contrary if you usually purchase gas with one particular company the brand specific card is best for you.
An example of a brand specific credit card is the Chase BP Visa with Pump Rewards. With this card you earn 15 cents per gallon rebates for every $100 spent at BP.
An example of a general gas credit card would be Blue Cash Preferred card from American Express. With this card, you can earn 3% cash back with purchases at gas stations located in the U.S.
Secured Credit Cards
These cards are designed for an individual who has bad credit. Also proper use of this card will improve a poor credit score. Basically how these cards work is you place a security deposit to the card issuer, and in return you get a credit card. The amount of the deposit usually has to be close or equal to the credit limit of the card. The credit limits are usually very low, and can range from $250-$1000 dollars. After making payments regularly on the card your credit limit increases and you will no longer need a secured card.
Prepaid Credit Cards
Prepaid credit cards are technically not credit cards as there is no monthly bill and they have no impact on your credit rating, however they are used and accepted like a regular credit card. These cards can be purchased at a variety of stores and usually range from $25 -$500. One downside to a prepaid card is there is an activation fee on top of the price of the card. Also there can be extra ATM fees associated with the card.
These cards are very useful as they avoid debt as the amount is already prepaid. For people who can’t get a credit card and need to make online purchases which require a credit card, these cards are useful.
However, regular credit cards are better in every other way — prepaid cards are only good for a last resort.
Business Credit Cards
These credit cards offer many of the same features and benefits of regular credit cards with the low introductory rates, cash back and reward programs. These cards generally have higher credit limits then the average credit card. Also where they differ is they have additional rewards and bonuses for using it to make purchases for your business. Some of these extra benefits include special payment and accounting options. The credit card company will often allow more detailed spending records and expense reports. The payment schedule may also differ from the average credit card, as it can be more personalized based on how the business operates.
Furthermore, a lot of the rewards are geared towards business related products and services. A lot of times the card will come with increased insurance for travel and car rentals .Also the business credit card comes with the ability to have to additional cards for the employees to use.
Student Credit Cards / First Time Credit Cards
It can be difficult for a student to be approved for a credit card due to having little or no credit. This is where student credit cards come into play. These cards are specialized for students as no credit score is needed to receive a student credit card. The credit limits are very low starting as low as $300 and can sometimes be as high as $1000 although the average lies in the middle of those figures. Some of the cards are specifically designed for students enrolled in college as they help them build up their credit.These cards sometimes come with reward programs although they are often very limited. These cards are very important first step in building a base for a good credit score, so it is important for the students to make payments regularly.
Travel Credit Cards
Technically, this is not a ‘class’ of credit card, but the category does exist. Travel Credit cards are basically cards that offer perks for people who do a lot of travelling abroad. They offer no foreign transaction fees, no foreign currency conversion fee (the 3% transaction fee is waived), travel-related point / mile bonuses, and may include travel insurance options for any purchase made with the card.