With so many different types of credit cards available, how do you know which card to choose? That depends on many factors. Do you carry a balance on your cards? Are you looking to rebuild your credit? Is a card with a low interest rate better than a card with no annual fee? The key to choosing the right credit card is to understand the different types of cards available.
Regular Credit Cards
Regular credit cards are much like a basic car with no options. They get you from point A to point B and don't really offer any extras along the road. Regular cards have a wide variety of interest rates and fees associated with them. Some cards have low interest rates, some offer no annual fee. There aren't any special perks like frequent flyer miles, but if you just need a basic card to make purchases with, these cards are for you. If you routinely carry a balance, look for a regular card with a low interest rate. If you pay off your cards in full every month, look for a card with no annual fee. Click here to view a list of regular credit cards.
Secured Credit Cards
Secured cards are great for people who are trying to rebuild their credit or establish credit for the first time. With a secured card you make a deposit with the card issuer. Your credit limit is then usually the amount you deposited, so if you make a $500 deposit your credit limit will be $500. Since you have deposited money with the card issuer, you are a much better credit risk from their point of view. Using a secured card responsibly and making on-time payments is a great way to show you can handle credit. If you can't afford the deposit for a secured card, consider applying for a pre-paid credit card. Click here to view a list of secured credit cards.
Pre-Paid Credit Cards
Pre-paid cards work much like gift cards do at retail stores. You make a deposit on the card of whatever amount you wish, then you can use the card to make purchases up to that amount. Pre-paid cards offer lots of protections that other forms of payment, like debit cards, do not. Usually pre-paid cards do not require a credit check, and some actually have credit rebuilder programs to help you improve your credit rating. Other pre-paid cards offer incentive or rewards programs. Click here to view a list of pre-paid credit cards.
Reward Credit Cards
Reward credit cards offer perks such as frequent flyer miles, hotel discounts and many other rewards just for using the card. If you use your credit cards a lot a reward credit card is a great way to gain extra goods and services just for using the card. There are many diffent types of reward cards available. The categories include travel, airline, hotel, retail, automobile, cash back, finance, gas, and more. Make sure you search around for the type of reward card that is best for you. A credit card that offers free airline tickets may sound nice, but if you never fly it doesn't make much sense to enroll in that program! Click here for a full list of reward cards.
Student Credit Cards
Establishing credit at an early age and learning how to use credit responsibly is a must these days. Student credit cards often come with discount programs and other services specifically designed for college students. While many people argue against students carring credit cards, learning how to use a credit card while in college will give a student a great advantage after they graduate. Establishing a positive credit history will help a graduate rent an apartment, buy a car and eventually purchase a home. Teaching responsible use of credit starts with finding the right card for the student. Click here to view a list of student credit cards.
Business Credit Cards
Business cards are great for small business owners or for anyone who needs a special card just for business purposes. Using a business credit card will help you keep your business and personal expenses separate. Having a special card just for business purposes can also make tax time a lot easier by having all your business expenses listed on one statement. Click here to view a list of business credit cards.
Other Types of Credit Cards
Poor Credit — These are great if your credit isn't so hot, but the interest rates and fees can be very high.
Low Interest Rate Cards (Purchases) — These cards all have low interest rates, which means you pay less over time if you carry a balance.
Low Interest Rate Cards (Cash Advances) — Taking out a cash advance usually isn't a good idea, but these cards all have lower rates if you have to.
Low Introductory Rate Cards — All of these cards offer a low introductory interest rate. Eventually the rate will go up, but if you transfer a balance to a card with a low introductory rate you can take advantage of the savings if you pay off the balance in full before the rate goes up.
No Annual or Monthly Fees — No one likes paying fees, but fees are just one aspect of credit cards to consider. These cards don't charge annual or monthly fees.
Credit Card Tips
- Carry two credit cards. Look for one card with a low interest rate if you have to carry a balance. Look for another card with a rewards program for purchases you will pay off in full.
- Never close your oldest account. The length of your credit history makes up a significant portion of your credit score. Keep your oldest accounts open and active by using them once in a while and paying the balance off in full.
- Never close a credit card that still has a balance. Doing so could trigger a massive interest rate hike.
- Always pay your bills on time. Late payments lower your credit score and make you more of a credit risk. Making one late payment could also trigger an interest rate hike on all of your cards.
- Always Pay more than the minimum payment. Minimum payments are designed to make your creditors money, not to get you out of debt. For example: If you only pay the minimum on a card with a $1,000 balance and an 18% interest rate, it will take you more than 19 years to pay off the card and you'll pay an additional $1,931.33 in interest. But if you pay $50 per month, it will only take two years to pay off the balance and cost an additional $197.83 in interest.
- Pay attention to your statements. If you don't look at your statements carefully you might be paying for purchases you never made or you might not notice that your interest rates went up. Remember, even on fixed rate credit cards your creditors can change the rate as long as they give you 15 days written notice.
