Types of Credit Cards: Which Should You Get?
Many banks offer deals to get people to sign up for a new credit card. Without proper research, these cards might look and function the same. However, each type of credit card is unique, and choosing the card that fits your lifestyle best can be rewarding.
This article elaborates on the different types of credit cards and their rewards. Understanding these can empower individuals to select starter credit cards or additional cards that align with their financial goals and spending habits while maximizing benefits and saving money. Let’s get started!
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Standard Credit Cards
These are the most common types of credit cards available for everyone. Standard credit cards are traditional credit cards that often have various features like rewards programs, cashback offers, and travel benefits.
These are convenient to use since they’re widely accepted as a payment method. Most importantly, these cards offer the opportunity to build a positive credit history.
Secured Credit Cards
Secured credit cards is a type of credit card that require a cash deposit as collateral, which serves as the credit limit. A secured card is ideal for individuals with limited credit or poor credit scores. Responsibly using a secured credit card and making timely payments help cardholders build or rebuild their credit.
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Unsecured Credit Cards
Unsecured credit cards are different types of credit cards that do not require collateral or a security deposit. These cards are issued based on the cardholder’s creditworthiness, determined by factors such as credit history, income, and credit score. It can provide flexibility and convenience for making purchases.
Rewards Credit Cards
Rewards credit cards offer incentives for cardholders’ spending. These rewards can include cashback, points, or airline miles. Users can redeem these rewards for various benefits like travel, merchandise, or statement credits.
Rewards credit cards often have annual fees and require good to excellent credit scores. It allows you to maximize savings or earn valuable perks through rewards programs.
Balance Transfer Credit Cards
Balance transfer cards allow cardholders to transfer balances from high-interest credit cards to a new card with a lower or 0% introductory interest rate. This can help individuals consolidate their debt and save money on interest payments or pay off debt efficiently. Balance transfer cards may have transfer fees and require good credit scores.
Student Credit Cards
A student credit card is a type of credit car that is ideal for college students with limited credit histories. Student cards often come with lower credit limits and tailored rewards or benefits, such as cashback on textbooks or discounts at certain merchants.
Student credit cards serve as a tool to help students build credit responsibly. It helps students learn about managing money and financial responsibility.
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Business Credit Cards
A business credit card caters to the needs of small business owners and entrepreneurs. Business credit cards are ideal for business owners to manage expenses and separate personal and business finances.
Furthermore, a business credit card provides features and benefits tailored to business expenses, such as expense tracking, employee card management, and rewards or discounts on business-related purchases. Some business credit cards may offer rewards or benefits tailored to business needs.
Cash Back Credit Cards
Cash back credit cards is a type of card that reward cardholders with a percentage of their purchases returned as cash back. Holders can redeem this as statement credits, checks, or direct deposits. The rate of cash back varies by card and purchase category, with some offering a flat rate on all purchases and others offering higher rates on specific categories like groceries, gas, or dining.
While cash-back credit cards provide a straightforward way to earn rewards, users must understand the card’s terms first. The provider might include caps on earnings, yearly fees, or specific spending requirements. Using cash back cards responsibly can lead to significant savings, making everyday spending more rewarding.
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Charge Cards
Unlike traditional types of credit cards, charge cards require cardholders to pay off the full balance each month without the option to carry a balance. They are flexible and convenient without accruing interest charges. Charge cards often have higher annual fees but offer perks like travel benefits and membership rewards programs.
Travel Credit Cards
Although many other types of credit cards offer travel perks, there are types of credit cards specifically designed for travelers and travel-related purchases in mind. Travel cards offer rewards, bonuses, and benefits such as airline miles, hotel discounts, and travel insurance. Some might also have perks like airport lounge access or discounts on travel expenses.
Airline Credit Cards
These cards are co-branded with specific airlines, allowing you to earn rewards, frequent flyer miles, and travel benefits. The difference between this and a travel credit card is that an airline credit card provides a more specific perk related to air travel.
Some airline cards offer free checked bags, priority boarding, or exclusive airline features. Its main edge is it enables frequent flyers to maximize rewards and enjoy additional travel-related benefits.
Co-branded Credit Cards
Co-branded credit cards is a type of card that are issued in partnership between credit card networks and specific brands, offering unique rewards and benefits related to the brand or industry. Try to look at your industry and find out if there are co-branded cards that can give you rewards, discounts, or exclusive benefits.
Store Credit Cards
A store credit card, co-branded with specific retailers, is designed to reward customer loyalty with exclusive benefits. These benefits include cash back, discounts, special financing deals, and early promotion access.
These cards are ideal for frequent shoppers at a particular store, as these cards can facilitate substantial savings on regular purchases. However, they often carry higher interest rates, and their rewards are typically store-specific, lacking the flexibility of general rewards cards.
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What to Do When Your Credit Card Application Is Rejected
You might think getting a credit card is a walk in the park. However, not all credit card applications are successful since issuers look at many factors. These include the applicant’s bank account, ability to repay the balances or their credit score, and any existing credit card debt.
If you happen to have an insufficient income or high debt-to-income ratio, the provider declining your application is a huge possibility. When that happens, here are a few things you have to check:
Ask for Reconsideration
When your chosen credit card issuer, unfortunately, denies your application, you can ask for reconsideration. You must address their concerns and reassure them they have nothing to worry about. For example, try to provide all your eligible sources of income or employment records. That way, the issuer knows you can pay any future debt.
Check Your Credit Report
Request a free copy of your credit report from a reputable credit reporting agency. Review it carefully for errors, inaccuracies, or negative information affecting your creditworthiness. Dispute any errors you find and work on resolving any outstanding issues.
Build or Improve Your Credit
If the issuer specified that your credit score is the problem, try to improve it before re-applying. You can do it by paying your bills on time and reducing any outstanding debt. Consider using alternative credit-building options such as secured credit cards or becoming an authorized user on someone else’s credit card.
Address the Specific Concerns
If the rejection was due to low income or high debt, focus on improving those areas. Increase your revenue through additional sources or take steps to pay your debts and lower your debt-to-income ratio.
Explore Alternative Options
If you need help getting approved for a traditional credit card, consider applying for a secured credit card, which requires a deposit as collateral. Using a secure card responsibly can help you build or rebuild your credit over time.
Wait and Reapply Strategically
Avoid submitting multiple credit card applications immediately after rejection, as it can further impact your credit score. Before reapplying, take some time to address the underlying issues and strengthen your credit profile. Research which cards are more suitable for your current credit standing and have higher approval odds.
Seek Professional Advice if Needed
If you need clarification on the reasons for the rejection or need guidance on improving your credit, consider consulting with a reputable credit counseling agency or a financial advisor who can provide personalized advice.
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Conclusion
Choosing the type of credit card does not have to be that hard. Knowing the differences between different types of credit cards helps you pick one that fits your needs.
Remember to compare the features, benefits, and fees of different credit cards before choosing one that aligns with your financial goals and spending habits. But to simplify the process, take some time to research what fits your specific needs and preferences.
It’s important to use credit cards responsibly, make timely payments, and keep balances manageable to avoid accumulating excessive debt. If you’re conflicted, remember you can always get more than one. However, it’s best to use only one when starting. You do not want to be in credit card debt!
Frequently Asked Questions (FAQs)
How do bonus categories work on credit cards?
Credit cards with bonus categories offer higher rewards for specific types of purchases. For example, a card may provide extra points or cash back for spending on dining, groceries, or gas. Cardholders can maximize their rewards by using the card for eligible purchases within the bonuses and earning more rewards for their spending.
What are the benefits of using a rewards credit card for everyday expenses?
Using a rewards card for everyday expenses allows cardholders to earn points, miles, or cash back on their regular spending. Individuals can enjoy free travel, gift cards, merchandise, or even statement credits by maximizing rewards, making it a smart financial strategy.
What are the benefits of using credit cards?
Using credit cards offers several benefits for consumers. You do not have to carry cash when you want to buy something. It also allows for quick and secure in-store and online transactions. It also allows individuals to make purchases even when they don’t have immediate funds. This can be useful for emergencies or large purchases.
Moreover, credit cards often come with rewards can be redeemed for various benefits such as statement credits, travel, merchandise, or cash. Some are after a positive credit history and improve their credit scores to have good future interest rates and loan options.
