Types of Credit Cards
There are many different types of credit cards available. To understand which one is right for you, you need to understand the features they offer.
There are many benefits to using using a credit card at checkout. Even though these benefits vary widely from one card to the next, there are a few primary types of credit cards that you should know about.
Among the most common incentives offered to credit card holders is a rewards program. Typically, rewards cards give their cardholders the opportunity to rewards based on their usage of the card. For example, a card may offer 1% cash back or 1 point per dollar spent on purchases made with the card. In addition, rewards cards may offer higher reward rates for specified categories, such as travel or groceries. These category-specific rewards typically range from 2-5 percent cash back, but can be even higher in some cases. If you are in the market for a new credit card, check out our card comparison tool to compare cards by reward rate.
Rewards can also be earned in other ways, such as offers and shopping portals. We’ll cover credit card rewards in detail in a future post.
Low Interest Rate
All credit cards have interest rates, but that doesn’t mean you’ll be charged interest for using a credit card. A card’s APR (Annual Percentage Rate) is only charged on balances that are carried beyond the grace period that begins when your billing cycle ends. The length of the grace period and the interest rates themselves vary from card to card, so it is important to know these values before applying for a card. But billing cycles are typically one month long, so if you pay your entire balance monthly, you won’t be paying any interest.
However, it is not always possible to avoid paying interest. Therefore, it is good to be familiar with the various interest rates a card can have, including:
- Purchase APR: this is the rate that applies to new purchase on your card each month (but only if you carry a balance beyond the payment grace period)
- Cash Advance APR: if you use your credit card to borrow cash, a different rate is often applied
- Balance Transfer APR: If you transfer a balance to your card (from another credit card, for instance), there may be a separate APR for the transferred balance
- Penalty APR: If you enter a penalty state (often by missing payments, but this varies from card to card), a different APR often takes affect
Some cards offer low introductory APRs for new purchases or balance transfers – as low as 0%! This can be a powerful tool, but be careful – once the introductory period is over, a much higher standard APR usually applies. For more details on credit card interest rates, check out this article.
Secured cards offer a line of credit that is ‘secured’ by cash in an account held by the issuer. Typically the card holder has a spending limit equal to the amount held in the account. Secured cards are usually available to people with poor or no credit. While secured cards don’t offer many of the benefits that other cards do, they are a powerful tool for anyone looking to rebuild their credit or build their credit for the first time.
This is a broad category, but that can’t be helped: the range of benefits that credit cards offer is truly extensive. The list below provides some examples of benefits (in addition to rewards and APR-related benefits) offered by various credit cards, but is far from exhaustive and sure to change as issuers invent new ways to attract customers.
Examples of credit card benefits include:
- Rental car insurance
- In-flight purchase reimbursements
- Checked baggage reimbursements
- TSA PreCheck or CLEAR membership reimbursements
- Elevated status with airlines and hotels
- Food delivery service memberships
- Reimbursements for streaming service memberships
- No foreign transaction fees
- Purchase or device insurance
From building credit to earning rewards, there are a lot of reasons to use a credit card. If you’re in the market for a new credit card (or your first card) be sure to research the options.
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