There are times when a credit card comes in handy. Perhaps you need to purchase something right away and would like the option to pay it back in installments later. Or you’d like to rent a car and the rental agency requires a credit card for a security deposit.
There are many types of credit card products available, offering everything from travel rewards, to perks and discounts at certain stores, to cash back on your purchases. How do you choose from all the different credit cards? By comparing features to decide on which card is best for you.
Table of Contents
- 1 Credit Cards Explained
- 2 1. Airline
- 3 2. Balance Transfer
- 4 3. Business
- 5 4. Cash Back
- 6 5. Charge
- 7 6. Fair Credit
- 8 7. Hotel
- 9 8. Limited
- 10 9. No Annual Fee
- 11 10. Plain-Vanilla
- 12 11. Prepaid
- 13 12. Rewards
- 14 13. Secured
- 15 14. Starter
- 16 15. Store
- 17 16. Student
- 18 17. Subprime
- 19 18. Travel Rewards
- 20 19. Unsecured
- 21 20. 0% Purchase APR
- 22 Credit Card Features and Restrictions
Credit Cards Explained
Credit cards are issued by a bank or card provider. Most card providers will evaluate your credit history to decide on whether to issue you a card. The higher your credit score, the better the chances your card application will be approved. Once you’re approved, you’ll be given a line of credit you can use for purchases, cash advances, and balance transfers.
One of the ways credit card providers make money is by charging you interest. You can pay your statement balance in full and avoid interest charges. Or you may choose to pay your card debt plus interest in monthly installments.
While most credit cards work in the same way, they may have different features. Here’s a breakdown of 20 different kinds of cards.
Airline credit cards usually come with signup bonus points to redeem for a free plane ticket (or two). They’re tied to a particular airline and its partners. Every time you make a purchase, you’ll earn rewards points or “miles” you can later redeem for more free travel.
Some of the best airline credit cards include:
- Citi / AAdvantage Platinum Select World Elite Mastercard;
- Delta SkyMiles Blue American Express Card;
- Southwest Rapid Rewards Plus Visa Card.
2. Balance Transfer
A balance transfer credit card offers you the chance to transfer a balance from a higher-interest-rate credit card and pay it off for a low or no-interest introductory rate. Remember to pay your balance off before the time period is over, or interest charges will kick in.
The following balance transfer cards come with great terms:
Business credit cards are designed with business owners in mind. They’re a good way to finance business expenditures and often come with cashback rewards on your business spending. Although a business card could keep your personal and business purchases separate, your personal credit score is required for approval.
Consider these business credit cards:
- American Express Blue Business Cash Card;
- Capital One Spark Cash for Business Visa;
- Chase Ink Business Unlimited Visa.
4. Cash Back
Cashback credit cards put money back in your pocket for every eligible card purchase you make. You’ll earn a certain percentage (1% or more) on every charge. You can apply the reward amount towards your card balance, receive a gift card, or request a check for the amount earned.
Compare cashback offers from some of the most popular cards:
- Capital One Savor Rewards Credit Card: 4% on dining and entertainment and 2% at grocery stores;
- Discover it Cash Back Credit Card: 5% back on rotating categories.
A charge card is different from a credit card because the card issuer doesn’t set a spending limit. You’ll also have to pay your balance in full each month. You’ll need excellent credit for a charge card, since you can spend as much as you’d like, as long as you pay it off in full.
Typical charge card providers include:
6. Fair Credit
When you’re just starting on your credit journey, or you’ve had some hiccups along the way, your credit score may not be high enough to qualify for the top-tier credit cards. Fortunately, there are credit cards available to individuals with a fair credit score of 580 to 669.
If you’re interested in building your credit, Capital One offers several card products for individuals with a fair or average FICO.
Similar to airline credit cards, hotel cards give you the opportunity to earn points you can redeem at a select hotel chain every time you make a card purchase. You’re usually locked into a select hotel chain, so make sure you’re likely to stay at the hotel chain of your choice.
Here are a couple of popular hotel credit cards:
Limited credit cards refer to the applicant’s credit history. This type of card is for someone with limited or no credit, such as a young adult. You may need to apply for a student credit card or a secured card, where you must put some cash down as collateral for your credit line.
Consider these cards if you have a limited credit history:
9. No Annual Fee
Cards with no annual fees are a wise choice. Otherwise, you’ll end up paying up to $550 per year just to have the credit card in your wallet. Cards with annual fees usually come with plenty of features and services to offset the annual fee, but you’ll find competitive cards with plenty of perks and no yearly obligation.
Some of the best no annual fee cards are:
- Capital One VentureOne Rewards Card;
- Chase Freedom Unlimited Visa;
- Wells Fargo Propel American Express.
If you’re looking for a basic card with no rewards, perks, or fancy frills, the plain-vanilla card is for you. They’re easy to understand because they don’t come with many options — you’ll have a spending limit and must pay off at least the minimum balance each month. The best part is they usually have no annual fee.
Try these basic cards:
A prepaid card is a credit card alternative. It’s not linked to a bank account and doesn’t come with minimum payments. You’ll need to load money onto a prepaid credit card to use it. Once you’ve spent the card amount, you’ll need to reload more cash to use it again. They can be helpful when you don’t want to carry cash, but a prepaid card won’t help you build your credit history.
Two prepaid cards available:
Rewards credit cards offer cardholders perks and bonuses. You’ll need to know what types of purchases earn you rewards and what the rules are for redeeming them, but if you’re going to use a credit card, you might as well get some benefits out of it.
Types of rewards credit cards include:
- Cashback rewards cards;
- Hotel rewards cards;
- Travel rewards cards.
Most cards are unsecured, meaning you don’t need to put money down as a guarantee you’ll pay your card balance off. A secured card is for individuals with no credit history or a poor FICO score. You’ll need to put down a deposit (which is often your credit limit). If you make your payments on time, most card providers will consider raising your credit limit. Secured credit cards help you build your credit.
Consider these secured cards:
Starter cards will help you build your credit from scratch. Spend responsibly and make your payments on time, and you’ll start establishing a positive credit history. The following types of credit cards fall into the starter card category because they’re easier for individuals with little or no credit history to qualify for:
- Fair credit cards;
- Limited credit cards;
- Secured credit cards;
- Student credit cards.
If you regularly shop at a particular retailer, a store credit card may be a good choice. You’ll have access to discounts and services other shoppers don’t have access to. You have two types of store cards available — open loop or closed loop. Open-loop cards can be used nearly anywhere, while closed-loop store cards only work for purchases at the store.
Some of the most popular store credit cards include:
College students have access to their own credit cards. They’re designed for young adults who may have no credit history established yet. In most cases, students qualify by being enrolled at an accredited four-year university.
Check out these student credit cards:
- Bank of America Travel Rewards Visa for Students;
- Citi Rewards+ Student MasterCard.
Subprime credit cards are marketed to individuals with a poor credit history and are not recommended. They come with higher than average interest rates, expensive fees, and often confusing terms and conditions. There are better alternatives to subprime credit cards, such as:
- Fair credit cards;
- Limited credit cards;
- Prepaid credit cards;
- Secured credit cards;
- Student credit cards.
18. Travel Rewards
Travel rewards cards are probably the most popular of the reward credit card types. They’re more flexible than airline or hotel cards because you’re not stuck with a single airline or hotel chain. They can also save you money when you travel — the top travel rewards cards offer free travel insurances and don’t charge foreign transaction fees.
These may be among the best travel rewards cards available:
Most credit cards are unsecured, meaning you don’t have to put a cash deposit down to qualify for one. A credit card provider will evaluate your credit history and FICO score to determine your creditworthiness. If you have a low credit score or limited credit history, a secured card may be an alternative.
20. 0% Purchase APR
Credit cards will charge you interest when you pay your purchases back over time. Annual percentage rate (APR) is the percentage amount you’ll be paying in interest over time. Cards may offer an introductory 0% APR for a limited time at signup or for select purchases.
These cards have an introductory 0% purchase APR:
- BankAmericard MasterCard;
- Wells Fargo Platinum Visa.
Credit Card Features and Restrictions
Depending on the type of credit card you choose, you’ll have specific restrictions. It’s best to review the terms and conditions before you apply. You should also consider how often you’ll use your credit card — and where. Mastercard and Visa are more widely accepted than American Express, Discover, or Diners Club. With a little research and knowledge of the different types of credit cards, you’re more likely to choose the best card for your needs.
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