Types of Credit Cards: A Beginner's Guide

Credit cards can be overwhelming, especially for beginners. There are many types to choose from, each with its own set of features and benefits.

Cashback credit cards are a great option for those who want to earn rewards on their purchases. For example, some cashback credit cards offer 1-5% cashback on certain categories like gas, groceries, or dining.

Rewards credit cards are another popular option. They offer points or miles that can be redeemed for travel, merchandise, or other rewards. Some rewards credit cards also offer sign-up bonuses, which can be a great way to earn extra rewards.

Secured credit cards are a good choice for those with poor or no credit. They require a security deposit, which becomes your credit limit. This type of card can help you build credit over time.

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Credit cards come in various types to cater to different needs and preferences. Some credit cards are issued by banks, credit unions, or other financial institutions, while others are branded by national retailers.

Rewards credit cards are popular, offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers, and cash back on purchases. These cards can be used anywhere, but some may have specific restrictions or requirements.

Secured credit cards are designed for individuals with limited or poor credit histories, requiring a deposit to secure the credit limit. This type of card can help build or rebuild credit scores, and some issuers offer the option to transition to an unsecured card after responsible use.

Some credit cards are specifically designed for students, offering lower limits, simplified application processes, and benefits such as cash-back rates on everyday items. These cards can help students establish and build credit, and some issuers may offer foreign transaction fee waivers for students studying or traveling abroad.

The following table summarizes the main types of credit cards:

Gas reward credit cards, fuel credit cards, and cash-back credit cards are also available, offering benefits such as fuel surcharge waivers, reward points for fuel purchases, and cash back on purchases.

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Rewards are a big draw for many credit card holders. You can earn rewards on purchases, travel, or even gas, depending on the type of credit card you have.

Rewards credit cards are designed to offer points, cashback, or other incentives for using the card. These rewards can be accumulated and redeemed for various products, services, or discounts.

Some rewards credit cards offer cash back on purchases, while others offer points or miles that can be redeemed for travel or other rewards. Travel credit cards, for example, earn rewards on flights, hotel stays, rental cars, cruises, and more.

If you're a frequent traveler, a travel credit card may be a good choice. These cards often come with benefits like air miles, free lounge access, and travel insurance. You can earn points or miles on travel-related expenses, which can be redeemed for discounted or even free air tickets.

There are two main subtypes of travel credit cards: branded travel cards and general travel cards. Branded travel cards earn points or miles with a specific airline or hotel brand, while general travel cards allow you to earn points or miles that can be redeemed through the issuer's online portal or transferred to a variety of providers.

Some rewards credit cards offer bonus rewards in specific categories, such as gas or dining. These cards can be a good choice if you frequently spend money in these areas.

Here are some examples of rewards credit cards and their benefits:

Rewards credit cards can be a great way to earn rewards on your purchases, but it's essential to understand the terms and conditions of the card, including any fees or interest rates.

Balance transfer credit cards offer a 0% APR for transferring balances from existing cards, usually lasting between six and 21 months.

These cards can be a financially advantageous option, especially for those with existing credit card debt and good credit. You'll likely need good credit to qualify for these types of cards.

Typically, you'll have to pay a 3% to 5% fee on balance transfers, which can be up to $500 for a $10,000 balance. This fee is important to keep in mind when considering a balance transfer.

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Opening a balance transfer card can save you hundreds or even thousands in interest if you can pay off the balance before the 0% APR offer expires. Even if you can't pay off the whole balance, you can still pay off part of the debt faster.

You'll want to make sure to pay off your transferred balance before the promotional period expires, as regular APR will apply to any remaining balances once it does.

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Student credit cards are designed for college students with limited credit histories and income. They often offer lower rates and fees than subprime cards and provide additional benefits when used in place of paying with cash or debit.

Student cards typically have modest rewards and credit lines compared to non-student cards. However, they can help students establish and build credit, which is essential for future financial goals.

To qualify for a student credit card, students must be at least 18 years old and provide proof of enrollment and income. Some cards also offer rewards, such as cash back or a bonus for maintaining a healthy account.

Student credit cards often have lower credit limits, which can reduce the risk of overspending and make them more manageable for students. The application process for these cards is often simpler, with fewer requirements than standard credit cards.

Some student credit cards don't charge foreign transaction fees, making them a great option for students studying or traveling abroad. Using a student credit card is like getting a bike with training wheels – it's a great way to cultivate healthy credit habits and build a solid credit score.

Here are some benefits of student credit cards:

Secured credit cards are a type of credit card that requires a security deposit, which acts as collateral. This deposit is usually equal to the desired credit limit. You'll need to deposit an amount equal to the desired credit line to be approved for a secured card.

Secured credit cards are designed for people with no credit history or a poor credit score. They offer a way to establish or reestablish credit while minimizing the risk for the issuer. The credit limit usually equals the security deposit made, reducing the issuer's risk.

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Some secured credit cards offer rewards and benefits, although they may be limited. These cards can help build credit and establish good credit history if used responsibly. You'll typically receive a security deposit back if the account closes in good standing or is upgraded to an unsecured card with the same issuer.

The security deposit can range from $50 to a few hundred dollars, depending on the issuer. This deposit is fully refundable as long as your account is fully paid up. Secured credit cards can be a good option for people who want to start building credit or need a way to establish a credit history.

Here are some key features of secured credit cards:

Secured credit cards are often used by people with limited or no credit history. They're a way to start building credit or establishing a credit history, and can be a good option for those who want to improve their credit score over time.

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Business credit cards are designed for business owners, and can be applied for by anyone who is an "authorized officer" of a business. This means they have the legal position to enter into contracts with financial institutions on behalf of the business.

Business credit cards can be used for business-related expenses, and don't require a formal LLC or articles of incorporation to apply. Even sole proprietors can get business cards.

Business credit cards tend to have higher credit limits than personal credit cards, which can help with business expenses until invoices get paid. This can also help maintain a healthy credit utilization ratio, good for the business credit score.

Small business cards function much like consumer credit cards, and may require personal guarantees to qualify. The business owner's personal credit score and history may also determine which small business card is best suited for them.

Business credit cards can offer excellent rewards and extra benefits, including free employee cards, business-management tools, and bonus rewards earned on business purchases.

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The ideal number of credit cards to carry is a personal decision that depends on your financial situation and goals. It's not about having as many cards as possible, but rather having the right ones to suit your needs.

Having multiple credit cards can be beneficial, but it's essential to manage them responsibly. This means being prepared for the responsibility of each credit account and the associated responsibility of managing multiple accounts.

There's no one-size-fits-all answer to the ideal number of credit cards you should carry. Financial wants and needs vary greatly from person to person, so it's crucial to assess your own situation before deciding.

Here are some popular credit card options to consider:

To make informed decisions about your credit cards, consider using online calculators like the Credit Card Interest Calculator or the Credit Card Payoff Calculator.

There are several types of credit cards available, each with its own unique features and benefits. Some credit cards may belong to two or more categories, such as a travel rewards card with a balance transfer offer.

Rewards credit cards are designed to offer points, cashback, or other incentives for using the card. They can be accumulated and redeemed for various products, services, or discounts.

Secured credit cards are a type of credit card where the cardholder makes a deposit in order to get and use the card. This deposit is often refunded after cardholders demonstrate responsible card usage over time.

Fees are another major part of credit cards. No-annual fee credit cards are available, but they may not offer a ton of perks and rewards.

Some large retailers issue branded versions of credit cards, which can be used only to make purchases from the issuing retailers. These cards may offer perks such as special discounts or promotional notices.

To help you choose the right credit card, here are some of the main types:

These types of credit cards cater to different needs and financial situations, so it's essential to understand the features and benefits of each before making a decision.

Credit cards offer a range of features that cater to different needs and preferences.

Rewards programs are a popular feature among credit card users, with some cards offering up to 5% cashback on specific categories like groceries or gas.

Some credit cards also come with sign-up bonuses, such as 50,000 points or a $500 statement credit, to incentivize new cardholders.

Travel benefits are another key feature, with some cards offering airport lounge access, travel insurance, and concierge services.

Annual fees are a common feature among premium credit cards, with some cards charging up to $550 per year.

Credit cards also offer purchase protection, with some cards covering purchases up to $10,000 against theft, loss, or damage.

You can have multiple credit cards, so don't be afraid to apply for one that aligns with your current needs.

Assess your spending habits to choose a card that offers the best rewards or benefits in those categories. For example, if you have upcoming trips, consider a travel credit card.

Compare fees, including annual fees, interest rates, and other charges, to ensure the card fits within your budget. You can also look at the rewards program, sign-up bonus, and any additional features or cardholder perks.

If your needs change, consider applying for another card that offers a different or complementary benefit. It's generally recommended to wait at least six months between credit card applications to minimize short-term credit score impacts.

Here are some types of credit cards to consider:

Remember to choose a card that meets your credit requirements and offers features that work well with your lifestyle and needs.

Credit cards typically charge a higher annual percentage rate (APR) vs. other forms of consumer loans, which can add up quickly if you're not careful.

Paying off balances before the grace period expires is a good practice, as it can save you from interest charges. By law, credit card issuers must offer a grace period of at least 21 days before interest on purchases can begin to accrue.

Some credit cards come with 0% APR introductory offers, but be aware that interest charges will kick in after the initial period ends. It's essential to understand whether your issuer accrues interest daily or monthly, as the former translates into higher interest charges for as long as the balance is not paid.

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Credit cards charge a higher annual percentage rate (APR) compared to other consumer loans. This means you'll pay more interest on your balance if you don't pay it off in full each month.

Interest charges on unpaid balances are usually imposed about a month after a purchase, unless you have a 0% APR introductory offer that lasts for a certain period after account opening. This means you won't have to worry about interest for a little while, but be aware that there's no grace period for new charges if previous unpaid balances are carried forward.

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By law, credit card issuers must offer a 21-day grace period before interest on purchases can begin to accrue. If you can, try to pay off your balance before this period expires to avoid interest charges.

Some credit cards accrue interest daily, while others do it monthly. If you switch to a card with a lower interest rate, it's essential to know whether your new card accrues interest daily or monthly, as this can affect your savings.

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Building a good credit history is a combination of things, including making regular, on-time payments, avoiding late payments, keeping credit utilization under your credit limit, and maintaining a low debt-to-income ratio.

A credit score will rise by making responsible purchases and paying them off promptly, making a consumer more attractive to other lenders.

Paying off your balance each month is best, but your card issuer won't allow you to use another card to do that.

Closing a line of credit can actually hurt your credit score since you lose the history and the available credit.

Using credit cards responsibly can help consumers build a positive credit history while providing a way to make online purchases and eliminate the need to carry cash.

For more insights, see: How to Increase Credit Score with Credit Card Payments

The annual fee on a credit card is the fee charged by the card issuer to extend the credit to you. Some cards don't charge an annual fee, but others can charge fees ranging from $50 to $700.

This fee is typically charged to cardholders who have a rewards or incentive credit card. You can expect to pay anywhere from $50 to $700 per year, depending on the type of card.

The good news is that you can avoid annual fees if you choose a credit card that doesn't charge one. However, keep in mind that these cards may not offer the same rewards or incentives as cards with annual fees.

If you do decide to get a card with an annual fee, make sure you understand what you're getting in return. Some cards may offer cash back, travel rewards, or other perks that can make the fee worthwhile.

Here's a breakdown of the annual fee range for different types of credit cards:

Keep in mind that these are general estimates, and the actual annual fee for a card can vary depending on the issuer and the specific card.