Whether you’re shopping around for your first credit card or are sick and tired of your existing cards, it is financially wise to review all your options. When it comes to credit cards, not all are created equally. Some give you rewards, some allow for flexibility, and others are best for specific lifestyles. Here’s a brief look at each type, and you can be the judge on what will be the best fit for your situation.
The “standard” credit card has no bells and whistles. While you shouldn’t expect discounts and rewards with these cards, there are benefits to using one. They are easy to use, simple to understand, and anything but complicated. When you sign up, the credit card company will assign you a balance and you can make purchases up until that limit. Once you make your payment at the end of the month, your balance starts over. Here are a couple types of standard credit cards:
- Low interest. When you know you’ll be making a large purchase that takes several bill cycles to pay off, a low interest credit card can be an excellent method of credit. These cards usually start with a very low interest rate in the initial stages and increase over time.
- Balance transfer. While each balance transfer credit card differs on terms and rates, most are an excellent way to reduce the interest you’re paying on existing debt. According to Jeff Weber of Smart Balance Transfers, “The beauty of balance transfer credit cards is that you can actually transfer high interest credit card balances to cards with a much lower, friendlier rate.” In other words, you’re able to trade out an existing interest rate for one that fits your budget.
If the standard credit card is the vanilla of the group, the reward credit cards are the cherry on top. These cards are backed by rewards programs and incentivize each purchase with accumulating points. The cardholder can then redeem these points for prizes like airfare, hotel accommodations, gift cards, concert tickets, or whatever else the program offers. A few examples include:
- General reward cards. Most major credit card companies now offer general reward programs to consumers. These programs reward the cardholder for every dollar spent on the card by assigning points. These points can then be used for everyday purchases, given to charity, or redeemed in exchange for gift cards.
- Cash back cards. While prizes and rewards are great, some people prefer cash. The typical cash back card rewards consumers for making purchases by giving one percent back on all purchases. These cards frequently come with annual fees attached to them.
For consumers with very specific needs and demands, specialty credit cards are advantageous. They serve as an alternative to generic cards that have no particular target group. Two of the most popular types of specialty cards are:
- Student cards. Student credit cards are for college students with no credit history. These are introductory cards that help students build healthy credit while taking advantage of lower than average rates.
- Business cards. If you’ve heard of business executives making charges to their business account, it’s probably being done on a business credit card. These specialty cards provide specific bonuses and perks, such as expense reports, higher credit limits, and individual employee cards. Many also offer rewards programs with redeemable prizes geared towards the corporate world.
Bad budgeting, irresponsible spending, or honest mistakes can all lead to credit issues. For consumers with below average credit scores, credit repair cards are a great solution. These cards are designed to rebuild poor credit history while establishing limits and guidelines to ensure there is no reckless spending behavior. Two examples are:
- Secured credit cards. As the name suggests, these cards are secured by an initial down payment or some sort of collateral. In the unfortunate situation that a payment cannot be made, the credit company is legally allowed to use the collateral to satisfy the debt.
- Prepaid credit cards. While they aren’t really credit cards by definition, they can serve the same purpose for people with poor financial history. The cardholder can transfer a specific amount of money to the card each month and it gets declined when the balance reaches zero.
As you can see, there are plenty of choices to choose from. While these are the basic types, each credit card company has their own unique rules, rates, rewards, and advantages. Before selecting your card, read the fine print and ask questions about things you don’t understand.