Types of Credit Cards – Forbes Advisor
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Different types of credit cards meet the different needs of cardholders. The right card will help you achieve your financial goals responsibly while providing the best possible value.
Many credit cards are best suited for a specific purpose, such as earning rewards, building credit, financing large purchases, helping businesses finance expenses while earning rewards, or financing past credit card debt through credit cards. Incentive balance transfer offers. Check out our guide below on the many types of credit cards to learn more about which ones might be right for you.
What are the different types of credit cards?
Credit cards with rewards
When cardholders use a rewards credit card to make purchases, they can earn rewards including cash back, points, or miles. Welcome bonuses offer new cardholders the chance to earn a reward for spending a specified amount on a card within a certain period of time.
For people who use credit cards frequently or for large purchases, rewards cards can be especially profitable. Travel Cards offer those who travel often (or frequently use specific airlines or hotels) extra miles and points that can be applied to free tickets or rooms, upgrades and status changes, as well as lounge access and certain travel protections.
For branded rewards cards, the same concept applies: frequent shoppers at certain retailers will often see the greatest benefit in earning high rewards rates or deep discounts when using the card online with a co-branded retailer. or to finance in-store purchases. .
Reward cards also do a good job of incentivizing cardholders. But if you’re trying to limit your credit card use, either because you might run into a large balance or because you want to limit your spending, a rewards card may not be right for you.
Premium Rewards Cards
Premium rewards cards typically charge a hefty annual fee in exchange for high reward earning potential and even more benefits. These cards are ideal for those who are good at handling credit cards. Typically, premium rewards cards require excellent credit for application approval.
Since interest rates on premium rewards cards are often high, they are best suited to cardholders who pay balances in full each month. If you often maintain a card balance, the fees and interest you’ll pay may cost more than the value of the rewards you could earn.
Balance Transfer Cards
Balance transfer offers allow cardholders to fund existing credit card debt, often for little or no interest during an introductory period. After the introductory period, a standard or regular APR applies. These “intro APR periods” can vary in length from six to 20 months or more.
Cards with balance transfer offers may also offer rewards or other benefits. If you’re trying to manage existing credit card debt, a balance transfer card can be a financially beneficial option even long after you complete the balance transfer.
To qualify for balance transfer offers and cards with 0% promotional interest or a low ongoing rate, you’ll likely need good credit. These types of cards are probably more available to those who have existing credit card debt but whose credit remains intact.
You’ll typically incur a 3-5% fee on balance transfers, so do the math to make sure a transfer will actually save you money.
0% Introductory Buy APR Cards
Cards with a 0% introductory APR allow cardholders to finance large purchases as long as you have a plan in place to pay it off before the zero interest period ends. After the end of an interest-free period, a regular APR will apply. The best introductory APR cards offer interest-free periods of a year or more to pay off purchases.
It is important to keep in mind that when using an introductory 0% APR card, you need to monitor your credit utilization rate. Ideally, your credit usage should never exceed 30% of the overall credit available on all revolving accounts.
College students, who traditionally have limited credit histories and incomes, can use student cards to help establish and grow their credit. Rewards and lines of credit on student cards tend to be modest compared to non-student cards. However, they often offer lower rates and fees than subprime cards, don’t require a deposit, and offer additional benefits when used instead of paying with cash or debit card.
Credit cards can help students manage their cash flow and learn sound financial management. Students who use their cards responsibly can graduate with a good credit history and good credit score, important factors when applying for a car or home loan.
Secured credit cards
Secured credit cards can open doors for people with no or poor credit history and can help establish or restore credit. The best secure cards also offer (somewhat limited) rewards and perks. A secured card will require a security deposit which the card issuer will use to secure or guarantee the account with. If approved for a secured card, you will need to deposit an amount equal to the desired line of credit.
If a cardholder maintains a credit utilization rate of 30% or less of available credit and continues to pay bills on time, a secured card will help build credit and establish a good credit history. A cardholder will generally receive a security deposit if the account closes in good standing or is upgraded to an unsecured card with the same issuer.
Retail credit cards
Some retailers offer co-branded store credit cards. These can be open-loop cards, meaning cardholders can use them anywhere, or closed-loop cards, meaning they will only work for purchases made from the retailer .
With the best store cards, you can access special rewards, discounts and promotions. With the worst store cards, interest rates can be astronomical and fees lurk like brambles in the tall grass. As with any financial product, make sure you understand all the fine print before applying.
Charge cards differ from regular credit cards in that they require cardholders to pay off a statement balance in full each month. While being required to pay off your entire balance each month might not sound appealing, it’s something that should ideally be done with any credit card and it’s a useful tool for managing debt. silver. You get the convenience of a card without the risk of your debt piling up.
Business credit cards
A designated business credit card is one way to keep business and personal finances separate. Like personal cards, the best business credit cards can offer great rewards and additional perks.
Small business cards work much like consumer credit cards. Small business owners will typically need to provide personal guarantees to qualify for a business credit card; A business owner’s personal credit rating and history can also determine which small business card is best for them.
Large corporations, government entities, and non-profit organizations may be eligible for certain corporate cards. Corporate cards provide a line of credit to an organization, not the business owner. Corporate cards depend on and affect business credit and therefore may not be available to small businesses, sole proprietors or independent contractors.
What type of credit card should I get?
Choose a credit card based on your credit score, spending habits and financial priorities. Do you want rewards? Additional benefits? An introductory period in April? Do you need a balance transfer?
Whatever type of card you have in mind, make sure you meet each card’s credit requirements and that its features suit your lifestyle and needs. There are hundreds of credit card options on the market and with the help of resources, including those from Forbes Advisor, you can choose the right one for your financial situation.
How many types of credit cards should I have?
It can be beneficial to use multiple types of credit cards as long as you manage them responsibly. Make sure you are prepared to take responsibility for each credit account and the responsibility associated with managing multiple accounts. There is no simple answer as to the ideal number of cards you should carry, as financial wants and needs vary widely from person to person.
Find the best credit cards for 2022
No credit card is the best option for every family, every purchase or every budget. We have selected the best credit cards so as to be the most useful for the greatest number of readers.
Many types and classifications of credit cards exist. Some cards earn rewards in the form of miles, points, or cash back and offer other benefits, while other cards can help you fund debt from another credit card with a lower APR. Other cards help consumers build credit and still others are used to finance major purchases. Small businesses and corporations use business credit cards to earn rewards and fund expenses. Some cards can serve multiple purposes.
Choose a card with the benefits that best meet your needs based on who you are and why you need a credit card. It is also perfectly acceptable not to have or use a credit card.
If you want a card, be sure to research the different card offers and fully understand the terms before applying so you are prepared to use the card responsibly if you qualify.