Credit cards allow you to buy something today and pay for it in the future. On top of this convenience, some cards let you earn rewards for spending, give you a break on paying interest or offer you a chance to rebuild your credit history.
With several types of credit cards available today, you have the flexibility to pick one that makes sense for your spending habits. And understanding the major categories of credit cards available can help you find the right fit.
Major Types of Credit Cards
— Secured credit cards
— Student credit cards
— Retail credit cards
— Balance transfer credit cards
— Zero percent APR credit cards
— Rewards credit cards
Secured credit cards. Secured credit cards require cardholders to pay a security deposit to open a credit card account. Typically, the cardholder’s security deposit is about $200 to $500 and often equal to the card’s credit limit.
“Secured credit cards are excellent for people who either have very little credit history or are attempting to rebuild credit,” says Janet Alvarez, executive editor at personal finance advice site Wise Bread. Secured cards offer consumers who may not be able to get approved for other types of credit a way to build or improve their credit history. With a security deposit, credit card companies don’t have as much to lose if a borrower defaults.
[Read: Best Secured Credit Cards.]
These credit cards may have higher interest rates than others and often come with annual fees. Secured credit cards do not typically offer as many features as unsecured credit cards, says Alvarez.
Secured credit cards are best for people who:
— Want to improve their credit score.
— Have no credit.
— Have damaged credit.
Student credit cards. Brian Canning, financial advisor and chair of the wealth management committee at Abacus Wealth Partners, says, “It’s important to start building credit once you turn 18.” Student credit cards are typically marketed to college students as a way to start building credit while attending school. These cards may be secured or unsecured depending on the particular card.
Alvarez says, “Often, they’ll have rewards in categories that are particularly useful for students.” These credit cards may provide the opportunity to earn rewards or cash back and often don’t come with annual fees. Cards make it enticing for young people to apply by offering student-centered benefits, such as a free year of Amazon Prime for students or extended warranty coverage.
You generally have to be 18 or older to get a student credit card solely in your name. If you’re younger than 21 and don’t have a reliable source of income, you’ll need to get a co-signer to get approved. This protection was enacted with the Credit CARD Act of 2009.
Student credit cards are best for people who:
— Are currently students.
— Want to build credit.
— Have a short or no credit history.
Retail credit cards. Retail stores offer branded credit cards to entice loyal customers. While you can use a general credit card anywhere its network is accepted, retail credit cards may be limited to the specific store and its partnering stores.
According to Canning, “The enticing factor is the fact you can get discounts for using these cards.” For example, you might get 20 percent off your first purchase when you sign up. These credit cards may also offer ongoing discounts or coupons for cardholders.
Store cards are usually easier to get approved for than regular cards. However, retail credit cards ordinarily have lower credit limits and higher interest rates than other types of credit cards.
Retail credit cards are best for people who:
— Are loyal shoppers of a particular store that offers frequent discounts for retail credit card holders.
— Are making a large purchase and can get a significant discount by signing up.
Balance transfer credit cards. Balance transfer credit cards give you the opportunity to pay low or no interest for a limited period on the credit card debt you owe if you transfer it to your new card. The promotional balance transfer interest rate offer can last up to 21 months.
If you move your credit card debt, you’ll have to pay a balance transfer fee. Expect to pay a 3 to 5 percent balance transfer fee with a minimum of $5 or $10 in most cases, says Canning. Some cards waive balance transfer fees entirely or during the first 45 to 60 days your account is open, but that’s rare.
When using a balance transfer credit card, set a goal to pay off your balance before the introductory rate expires. You’ll have to pay the balance transfer APR specified in your cardholder agreement on any balance transfer amount remaining after the introductory period is over.
[Read: Best Balance Transfer Credit Cards.]
Balance transfer credit cards are best for people who:
— Want to save money on interest payments.
— Plan to pay off balances during the introductory period.
Zero percent APR credit cards. Zero percent APR credit cards give new cardholders a break on paying interest on their purchases during the introductory period. Cards in this category often don’t charge interest on balances transferred during the introductory period.
While purchases made within the promotional period won’t incur interest, you have to make the minimum payment in accordance with the cardholder agreement to keep the zero percent rate.
Zero percent APR periods on purchases may last as long as 20 months. You’ll have to start paying the regular purchase APR on any balance remaining at the end of the promotional period. But if you make an error and fail to comply with the terms and conditions of your credit card offer — such as missing a payment — you may lose your introductory APR immediately.
Similarly, low-interest credit cards can help you save money on interest, which is especially helpful when making a large purchase. But unlike zero percent APR cards, they charge interest, even if it’s lower than average, from the start.
Zero percent APR credit cards are best for people who:
— Need to make a large purchase.
— Can pay off the balance before the promotional zero percent APR period expires.
Rewards credit cards. Rewards credit cards offer a wide range of rewards-earning opportunities and redemption options, depending on the credit card you pick.
[Read: Best Rewards Credit Cards.]
“There are certain cards that benefit certain types of spending behaviors,” says Canning. Rewards cards may offer varying rewards rates depending on which category your purchase falls into. Some even have bonus categories that rotate on a quarterly basis. Popular categories include travel, dining, gas and groceries.
Rewards credit cards may offer flexible redemption options or redemption geared toward specific goals, such as general travel, hotels, airlines and cruises. Some rewards credit cards do not have annual fees, but they may have lower rewards earning levels or fewer benefits than cards with annual fees.
To get the full value from rewards credit cards, you’ll need to make sure you’re earning enough points or miles to offset the annual fee, if your card has one. And you should pay your balance in full each month so you’re not offsetting rewards earning with interest charges.
Rewards credit cards are best for people who:
— Pay their credit card balance off in full each month.
— Want to get rewarded for purchases.
— Travel frequently.
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