Before applying for a credit card, the first thing you need to do is know is what types of credit cards are there to choose from. If this is your first experience with applying for a credit card you may not be aware that there are in fact several different types of credit cards. Each of these has their own eligibility criteria. Each of these also has their own set of rewards, perks, and terms and conditions.
Choosing a credit card because another family member or friend has it can be a mistake. What works for them may not work for you. The best credit card for you will depend on your financial circumstances and spending habits.
A look at what types of credit cards are there and how each one works will help you choose the for you.
#1. Rewards Credit Cards
Rewards credit cards are hands down the most popular type of credit card. It’s not surprising too. This type of credit card is versatile, allowing you to save on a wide range of items.
Every time you purchase something using your rewards credit card, you earn a percentage of your spending in the form of points, cash back, or statement credits. These can be used towards future purchases, which lowers the cost price of that item. You keep earning points or credits every time you use your card, which you can keep using towards your next purchases. This can save you a lot of money over time.
All rewards credit cards don’t work the exact same way. Most offer a flat percentage of your spending but there are some that offer bonus points on popular categories such as gas, groceries, travel or dining. If you tend to spend a lot more in particular categories such as groceries or gas, it’s a good idea to choose a relevant bonus category card instead of a flat rate card.
Most rewards credit cards come with no annual fees, which can adds to your savings. A few cards, mainly those with more generous rewards schemes and offers, charge nominal annual fees, usually less than $100/year.
Who is a rewards credit card good for? A rewards credit card is one of the best types of credit cards for anyone looking to get the best value on their purchases. Earning cash back or points can save you a substantial amount of money over a period of time, effectively reducing the cost of credit. The 0 annual fees adds to those savings.
#2. Travel Credit Cards
If you travel often, whether for business or pleasure, you should definitely consider getting a travel credit card. Designed for frequent travelers, this type of credit card offers you the opportunity to earn rewards on all types of travel-related purchases ranging from flights and hotel stays to car rentals and airport lounge access.
The exact type of rewards may vary from one card to another. Most travel credit cards offer flexible travel credits you can use toward any future purchases. Others may offer points that you can transfer to select airline or hotel programs. Still others allow you to earn and spend points within specific programs such as a frequent flyer or hotel loyalty program. In addition, you get perks such as free or discounted flights, upgrades, and discounted hotel stays, which add to your savings.
Most travel rewards credit card have an annual fee. However, the miles or points you accrue can be redeemed for flights and hotel stays, which can amount to significant savings. If you travel often, these savings can outweigh the annual fees.
Who is a travel credit card good for? With a variety of travel-related perks, travel credit card is a fantastic choice for the frequent traveler. You earn miles or points on every purchase that you can use towards flights and hotel stays. Getting a travel credit card is the easiest way to save money on your frequent travels.
#3. Student Credit Cards
Student credit cards are designed specifically for young adults just starting out their journey towards financial independence. They typically have no income and little to no credit history, both of which are minimum requirements for most other types of credit cards. The one requirement you will need to get approved for a student credit card is you have to be enrolled at an accredited 4-year university.
Essentially a type of starter credit card, student credit cards have a variety of features that make it easy for students to get approved and more importantly, to build their credit from scratch. For one thing, the eligibility requirements are not as stringent as that of other cards. There are no annual fees, which makes it affordable for students on a tight budget. Student credit card holders also get attractive rewards or credit points for every dollar spent in addition to discounts at select stores.
Are you a hard worker and do you usually get good grades? Look for a student credit card that offers financial rewards or other perks for students with a good GPA.
Student credit cards usually have lower credit limits but the easier approval and all other perks more than make up for this one downside.
Who is a student credit card good for? This is a great starter card for students with a limited budget, no income, and no credit history. Using the card responsibly, which means spending wisely and paying in full by the deadline, will help you get started with building your credit. Those rewards, discounts, and bonuses translate to cool savings too.
#4. Secured Credit Cards
Secured credit cards are unique. They work differently from all other credit cards. With most types of credit cards, the lender offers you a line of credit and sets a maximum that you can borrow in one billing cycle. Once you pay back what you owe for one billing cycle, the credit limit is then re-set for the next cycle.
A secured credit card is not an open line of credit. To get a card of this type, you need to first make a security deposit to secure a line of credit. The secured credit card is issued against this deposit. In this case, your credit limit is the amount that you put into the security deposit. You will have to pay your secured credit card bill every month to replenish the deposit for the next cycle.
So why bother to get a credit card when you have to put up your own cash as security? The benefit of to using a secured credit card vs. spending the money directly is that it allows you to build your credit score. You can’t build your score when you spend cash directly.
Who is a secured credit card good for? A secured credit card may be a good fit for you if you have no credit history or if you have a poor credit score. You can get approved without good credit and regular on-time payments will help you build credit over time. This type of card is also a better option for those who tend to overspend and accumulate credit card debt with a regular credit card. With a secured credit card, you can’t spend what you don’t have.
#5. Business Credit Cards
Business credit cards provide business owners with a convenient way to keep their business and personal transactions separate while earning rewards on all business expenses. These cards are designed specifically for business use and offer a variety of rewards programs. Some offer a flat percentage cash back, while others may offer points or credits on specific business expenses. Most business credit cards offer features such as expense tracking abilities that help boost your bottom line.
Business credit cards may also offer the same perks as general rewards credit cards, cash back credit cards, or travel credit cards. The only difference is, you must have a business or some sort of income-generating activity to qualify for a business credit card.
In addition to having your own business, you will also need to have good credit history to get approved for this type of credit card. This is because the card issuer will want to hold an individual accountable for the paying back the debt.
There are several benefits to getting a business credit card instead of a regular credit card is you’re a business-owner. Using this card can help your cash flow while allowing you to keep business-related expenses separate from personal expenses. The generous rewards programs do much to lower your overall business costs.
Who is a business credit card good for? With the many benefits related to business purchases, this type of credit card is a great option for business owners.
#6. 0% Intro APR Credit Cards
Several credit cards offer 0% APR on all card purchases, usually for a limited amount of time. This can come in very handy if you want to make a large purchase but know that you can’t afford to pay it back in full within one billing cycle. With a 0% APR card, you can take more than one billing cycle to pay the money back without any interest.
Credit card interest rates can be shockingly high. They carry the highest interest rate of all types of debt, with APRs typically between 15% and 23% on outstanding payments. Getting a 0% APR card allows you to stagger your payments over a few months without paying any interest. You must complete the full payment before the end of the specified zero-APR. After that, higher interest rates kick in, and you’ll end up paying more in interest on your purchase.
Who is a 0% APR card good for? This is a great option for anyone who needs to make a large purchase and would like to spread the outstanding paying over a few months instead of paying it all within one billing cycle.
#7. Balance Transfer Credit Cards
Balance transfer credit cards offer a combination of two features that make them very useful for card holders carrying a lot of credit card debt. These cards allow you to transfer credit card debt from other cards onto the new card. The new card also offers a limited interest-free period. When you transfer your high-interest credit card debts onto the new card, you won’t pay any interest if you clear the entire debt within the 0% interest period. This can save you a lot of money in interest.
The zero-interest period varies considerably among balance transfer credit cards. When looking for such a card, it’s important to choose one with an interest-free period that’s long enough to pay off your debt. It’s equally to make a plan to pay down the debt within that period. Any balance outstanding after the promotional promo period will incur higher-than-normal interest, wiping out all the benefits.
Who is a balance transfer credit card good for? This type of credit card is good for anyone who is dealing with high-interest credit card. Using a balance transfer credit card strategically can help pay down that debt without paying the usual high interest rates.
#8. Gas Rewards Credit Cards
Gas rewards credit cards offer an array of rewards on gas purchases. This could be in the form of cash back or credits that can be used towards future purchases. There are several different types of gas rewards credit cards and each of them may work slightly differently. Some offer more rewards during certain months. Others have occasional promotional periods during which they offer double the rewards. Still others may put a cap on the amount of rewards you can earn on one card.
If you drive a lot and are looking for a gas rewards credit card, make sure to choose one that offers the best deal for the type of driving that you do.
Who is a gas rewards credit card good for? This type of card may be a good fit for anyone who drives and will benefit from the rewards on their gas purchases.
#9. Co-Branded Credit Cards
Co-branded credit cards are offered by traditional card issuers along with a select brand or store.
For example, a card issuer may offer a co-branded credit card with an airline. Using this card will allow you to earn miles within a specified frequent flyer program. Another card issuer may partner with a retail store. Using this card will allow you to earn cash back or points on purchases from that specific store to be used towards purchases in the same store.
While the rewards offered by co-branded credit cards are limited, you can rack up huge savings if you tend to patronize that particular brand or store.
Who is a co-branded credit card good for? This card is only beneficial to someone who patronizes select stores or brands.
#10. Store-Branded Credit Cards
Unlike all other credit cards that are offered by banks and credit unions, store-branded credit cards are offered by retail stores. This could be a department store, supermarket, or gas station. These cards offer a range of rewards and perks but can only be used for purchases within that individual store or chain of stores.
Although a store-branded credit card has limited use, you could avail of some great discounts or rewards if you shop a lot at that particular retailer.
Who is a store-branded credit card good for? This type of credit card is only useful if you patronize a specific store or retail chain.
3 Steps To Choosing The Right Type Of Credit Card For You
When looking for the best credit card for you, it’s important to first factor in your spending habits.
Then compare the features and rewards of the different types of credit cards.
Finally choose the credit card that offers the best rewards and perks in categories where you spend the most.