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If you’re looking at new credit card offers, you’ve probably noticed there are quite a few options out there.
The truth is there are many different types of credit cards available to consumers and the offers and benefits may vary based on the populations they serve. Have credit that needs work? There’s a credit card for you. Want to earn cash back or get travel rewards? You’re covered.
“In much the same manner as the smartphone, multiple options exist which appeal to people (or businesses) based on feature needs, price points and other considerations,” says Alex Cramer, head of cards at a startup consumer credit card company.
But what exactly are the different credit card types? Below, we break down the various types of credit cards. Read on to get the lowdown on the types of credit cards available and find out which option might be a good fit for you.
|9 types of credit card||Definition|
|1. Unsecured credit card||The most common type of credit card. Typically meant for people with fair to excellent credit.|
|2. Secured credit card||Typically requires a cash security deposit, which may serve as the cardholder’s credit limit. Typically for people with no credit or those whose credit needs work.|
|3. Balance transfer credit card||Allows users to transfer their credit card balances to a new card, usually to save money on interest. Typically the new card has a 0 percent introductory annual percentage rate (APR) for a specific period.|
|4. Travel rewards credit card||Offers miles or points that can be redeemed for travel-related purchases, such as airfare and hotels.|
|5. Gas rewards credit card||Gives cash back for paying at the pump.|
|6. Cash back rewards credit card||Offers a percentage of cash back on eligible purchases.|
|7. Student credit card||Starter card that can be a good first credit card option. Generally comes with a small credit limit.|
|8. 0 percent intro APR credit card||Allows you to pay no interest on purchases and/or balance transfers for a certain period.|
|9. Retail card||You earn points for services or products that you buy from a particular retailer (for example, a warehouse club, department store or gas station).|
Unsecured credit cards are the most common type of credit cards. Unlike secured credit cards, unsecured credit cards don’t require you to deposit cash as collateral.
These cards are good for most consumers and can help build credit when used responsibly. Travel rewards and cash back cards are common examples of unsecured card.
A good starter unsecured credit card is the Capital One® Platinum Credit Card, which has no annual fee.
If your credit needs work or you have no credit history, a secured credit card may be a good fit for you.
Secured credit cards typically require you to put up a deposit to secure your line of credit. Your credit limit is usually equal to the amount of your deposit (if one is required).
For example, if you deposit $500, you could get a $500 line of credit on that card. And if you decide to close your secured card but have an outstanding balance, you may not get your deposit back.
Secured credit cards are typically limited in their reward offerings, but they can be a good option for those looking to rebuild or establish credit.
The Discover it® is a solid secured card that has no annual fee and offers cash back rewards.
Are you in credit card debt and looking to save money on interest? A balance transfer card may help you do just that. Balance transfer credit cards allow you to transfer credit card debt from other credit cards or lenders, and typically offer a 0 percent introductory APR for transfers for a certain amount of time.
This can be a big advantage if you transfer high-interest debt. It’s important to note that the introductory APR won’t last forever, so make sure you have a plan to pay down debt within the promotional intro period.Learn about how to do a balance transfer in 6 steps.
Also, many balance transfer credit cards have a balance transfer fee of 3 to 5 percent, so check what costs and fees you’ll be paying if you opt for this type of card.
A good balance transfer credit card is the Chase Slate®, which has a $0 annual fee and no balance transfer fee when you transfer a balance during the first 60 days your account is open. After that, the fee is 5 percent ($5 minimum) of the amount transferred.
Is travel at the top of your bucket list? A travel rewards credit card can help you save money on travel-related purchases.
Travel rewards credit cards may come with an annual fee, but they offer programs where you can accrue enough miles or points to redeem for flights and/or hotel stays.
For example, you may get one mile or point per dollar spent on anything on your credit card and receive a signup bonus after meeting a spending requirement within a certain amount of time.
A good credit card for travel rewards is the Chase Sapphire Preferred® Card. It offers 50,000 bonus points after you spend $4,000 within the first three months from account opening. There are also no foreign transaction fees, and you’ll earn two points per dollar spent on travel and dining at restaurants worldwide.
If you have a long daily commute or work as a contract driver through Uber or Lyft, a gas rewards credit card could be a good fit. They’re a type of rewards credit card that typically offers good to great rewards on gas purchases.
Note that some gas rewards cards may restrict the amount of rewards you can earn or offer more rewards during certain months. This type of credit card is generally good for those who drive a lot and can benefit from the rewards.
An example of a rewards credit card that offers great cash back rewards for gas purchases is the Blue Cash Preferred® Card from American Express, which offers 3 percent cash back at U.S. gas stations.
Cash back credit cards allow you to earn points when you make a purchase. These rewards can usually be redeemed for statement credit, cash back or gift cards.
Some cards offer a flat percentage for cash back, while others may have bonus categories where you can earn even more cash back. This type of credit card is a good option for budget-savvy cardholders looking to get the most bang for their buck.
A good cash back credit card is the Citi® Double Cash Card, which allows you to earn cash back twice – 1 percent on purchases and an additional 1 percent as you pay for those purchases.
Student credit cards are typically reserved for college students who have little to no credit history and are looking to build their credit from scratch. These cards can be easier to get approved for, but they also usually have a lower credit limit.
Some student credit cards might be secured credit cards, meaning they may require a cash deposit as collateral. They also tend to have higher interest rates.
A good student credit card is Journey® Student Rewards from Capital One®, which offers 1 percent cash back on all purchases and has no annual fee.
Credit card interest rates can be relatively high, with average APRs between 15 and 23 percent. Because of this, a 0 percent intro APR credit card can be an attractive option for consumers looking to make a big purchase and pay it off over a certain period of time.
The APR will eventually increase, so it’s important to check the post-intro APR before applying. A 0 percent intro APR can be a useful perk, but you’ll definitely want to read the fine print.
A good option for a 0 percent intro APR card is Chase Freedom Unlimited®, which offers 0 percent intro APR for 15 months from account opening on purchases as well as balance transfers. After that, your APR for purchases and balance transfers will be a variable rate of 15.99 to 24.74 percent, based on your creditworthiness.
Retail cards generally result from a partnership between a bank and a big retailer, or are issued by big retailers themselves.
They fall into two main categories:
- Closed loop, where you can only use the credit card at the retailer in question (for example, the Target REDcard™ credit card, Walmart Credit Card, Costco Anywhere Visa® Card by Citi).
- Open loop, where the card is sponsored by a retailer and backed by a major credit card network such as Visa® or Mastercard® (for example, the Gap Visa® Card, Sony® Card from Capital One®)
Closed loop retail cards can be a good option to help build credit, as you may get approved for a card even with average credit. This is less applicable for open loop retail cards, as these may be subject to similar credit requirements as traditional credit cards.
However, closed loop retail cards often also come with low credit limits and high interest rates so if you get one, keep a close eye on your spending as it can affect your credit.
For example, if you have a retail credit card with a limit of $400 and you spend $200 on it, your credit utilization is 50 percent, well over the 30 percent maximum recommended by experts.
If you’re using it to build credit, check with the provider to make sure that your payment history is being reported to the credit bureaus.
While there are many different credit card types out there, it’s important to assess your goals before choosing a credit card. You want to find one that fits with your lifestyle, values and financial picture.
“Choose a product that offers pricing and functionality,” Cramer says. And be sure to read the fine print and eligibility requirements.
Choosing the right credit card and knowing the pros and cons can help set yourself up for success.
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