Americans depend on credit cards more than ever. As many as 55% of American adults with a credit card report having debt.
Additionally, with consumer credit card debt rising to over $1.04 trillion, more Americans are carrying a balance on their credit cards.
If you are considering applying for a new card, you need to know all of your options. Understanding the different credit card categories will help you compare cards and find the right one for you.
Keep reading to learn about the many different types of credit cards.
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These cards offer you the basic functions of a credit card without all of the frills. You won’t get rewards or special offers. This makes it easy to understand and track.
With this type of card, you have a revolving balance and a specific credit limit. As you make purchases, you use up the credit. Then you’ll need to pay off the balance you owe.
There is a minimum payment you will need to make every month, but it is better to pay off as much as possible. That way you pay minimum interest on your purchases.
Many credit cards offer the ability to transfer a balance. But some credit cards are aimed explicitly at balance transfers.
Balance transfer cards offer promotional introductory rates. They are an excellent solution for someone who has a large balance on a high-interest credit card.
Pay attention to the balance transfer rate and fees charged. Some are as low as 0%, while others will charge you a percentage of the balance.
Look for the lowest promotional rate or the longest promotional period. These are the most desirable cards.
If you are looking for perks, then these are the cards you need to look at. Just as the name indicates, you will earn rewards based on your spending.
There are three types of rewards credit cards, cash, points, and travel. Which one you choose will depend on what you hope to do with your rewards.
If you like the freedom of cash, then choose a cashback card. If you travel a lot, then a travel rewards card is right up your alley. Then a point card gives you the ability to redeem for cash or other merchandise.
If you are a student, now is the perfect time to start building your credit. These cards are specifically designed with students in mind.
This means people with little or no credit history. You may even find cards that offer APR discounts based on your grades.
Keep in mind that many student-specific credit cards require that you be enrolled in an accredited four-year university to qualify.
These cards don’t have a specific spending limit like the other cards on this list. The catch is that you must pay the full balance off at the end of each month.
If you make a late payment, there will be fees and restrictions placed on the use of your card. Some companies will even cancel your card if you miss a payment.
If you have poor credit and are looking to rebuild, then a secured card can help you. These credit cards require you to make a security deposit when you are approved.
Your security deposit will secure your credit limit. You will still need to make monthly payments; the security deposit is only in place to cover the debt should you default on your debt.
As you make monthly payments, your credit card company will gradually increase your limit without requiring you to make an additional security deposit.
Look for a card that also offers monthly payment reporting to the three credit agencies. This will give you the biggest benefit to your credit score.
These are the most predatory of credit cards. They are geared to those who have poor credit, and approval often comes quickly.
Most of these cards have high-interest rates and fees. You will also need to read the fine print carefully as the terms are often confusing. While there are Federal Rules in place to protect consumers, many subprime credit card companies will look for ways to skirt the law or loopholes.
Prepaid credit cards aren’t actually credit cards, but they are an option for those who struggle with managing their money. You load money onto your card to increase the available balance.
Then money is deducted from your balance as you charge your card. There is no minimum monthly payment. However, when your balance reaches zero, you cannot make any more purchases until you reload the card.
These cards work in a similar manner as a debit card. The only difference is that a prepaid card is not tied to a checking account.
Some cards are meant to be used for a specific purpose. Others can only be used at particular locations like in an online store or specific retail location. These cards work similarly to basic credit cards where you have a spending limit, minimum monthly payment, and finance charges.
Some credit cards are specifically meant for use by a business. They offer business owners the ability to keep their business and personal expenses separate.
Be prepared to have your personal credit score checked when you apply. This is because someone needs to be responsible for the credit card.
Choose From These Credit Card Categories
Now that you understand all of the different credit card categories, you are ready to start looking for your next credit card. To determine which categories are best for you, start by looking at your credit score and history.
Then decide what your future financial goals are. This will help you determine if you should go for cards that cater to poor credit or cards that are meant for those with excellent credit.
It will also help you determine if you should go for a balance transfer card, or rewards card, or maybe even a limited purpose card.
Thankfully, credit cards are becoming more and more available, according to this study from the CFPB, so you should be able to find what you are looking for.
Now that you know the different types of credit cards check out the best-ranked cards for you to apply for.
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